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AUD rally falters ahead of RBA policy update

Tuesday 7 September, 2021

Daily Currency Update

The Australian dollar tracked sideways through much of Monday in what was a largely quiet start to the trading week. Having surged through 0.74 and 0.7450 following last weeks softer than anticipated US payroll print investors looked to square positions and consolidate the relief rally ahead of today’s RBA policy announcement and rate statement. Having outperformed last week today’s policy update is crucial in determining near term AUD direction. We anticipate the RBA will maintain its current policy setting, while deferring a further wind back of the bond purchase plan. We expect they will maintain the current rate of bond purchases into November so as to retain some flexibility when responding to the changing impacts driven by the extended lockdowns in NSW, the ACT and Victoria. The market has priced in a continuation of the current accommodative policy setting leaving the AUD open to some near-term weakness should they adopt a dovish tone. Having bounced between 0.7425 and 0.7440 through the last 12 hours we expect the currency will find support on moves approaching 0.7380 while meeting resistance on forays nearing 0.7470/80.

Key Movers

With both the US and Canada on Holiday to start the new week price action across currency markets was largely muted through Monday. Labor day holiday’s meant quiet trading conditions and the sustained rally across global equities failed to permeate currency markets as the USD found some support following last week's softer than anticipated payroll print. The US has come under sustained downside pressure following Fed Chair Jerome Powell’s Jackson hole speech and last week's labour market miss eased fears linked to an early tightening of financial conditions. We expect the Fed will defer now any announcement surrounding the tapering of bond purchases into November with a view to reducing QE supports in December. Assuming the current recoupling of global growth optimism and positive sentiment continues we see scope for ongoing USD softness through the coming weeks and months. With little of note on today’s macroeconomic ticket outside the RBA policy announcement our attentions turn to Thursday’s ECB policy update. With calls growing for the ECB to move toward a normalised and neutral policy platform we expect policy makers will begin tweaking the language surrounding QE purchases and move away from a policy biased toward further rate cuts. A hawkish assessment could afford the Euro some short term upside, but the slow path to normalisation when contrast against other major central banks should cap gains.

Expected Ranges

  • AUD/USD: 0.7320 - 0.7520 ▼
  • AUD/EUR: 0.6190 - 0.6290 ▼
  • GBP/AUD: 1.8420 - 1.8740 ▼
  • AUD/NZD: 1.0380 - 1.0450 ▲
  • AUD/CAD: 0.9280 - 0.9350 ▼