AUD unsteady in the face of broad US dollar strength
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Daily Currency Update
The Australian dollar tracked lower on Tuesday, unable to repel the resurgent US dollar. After Monday’s sharp correction, markets adopted a much more cautious tone as U.S. Treasury yields and equities fell. US-China trade talks concluded in Stockholm with no final agreement announced. While both sides indicated a willingness to extend the current tariff truce, the lack of a new deal elevated concerns that the two sides will not find a compromise. The AUD slipped from US$0.6530, trading below US$0.65 and marking an overnight low of US$0.6496 before settling near US$0.6515 leading into this morning’s open.Our focus turns now to a busy macroeconomic docket. Domestic Q2 CPI inflation data headlines the local ticket. We expect a print largely in line with the RBA’s forecasts and a read supportive of a rate cut in August. A softer print could give the RBA pause to further delay rate cuts, which may lend the AUD some support. Most analysts are pricing cuts in August, November and February. A disruption in that schedule could afford the AUD a boost similar to that seen in the wake of the RBA policy meeting.
Off shore Eurozone Q2 GDP numbers, a Bank of Canada policy meeting, advanced US payroll data and an FOMC policy decision dominate direction.
Key Movers
The USD upswing continued through trade on Tuesday despite a weaker-than-anticipated US JOLTS jobs report and falling US treasury yields. 10-year yields fell as month-end buying, a shift in treasury debt issuance strategies, and a potential September rate cut drove demand toward the short end of the yield curve. The ten-year rate fell to 4.33%, down 7 basis points over the last 24 hours. While a decline in yields would ordinarily prompt a fall in the dollar, markets appeared content in looking beyond the yield correction, driving the dollar higher at the expense of the euro. The euro weakened, extending Monday’s downturn as the fallout from the US-EU trade deal continues to weigh on the shared currency. The euro fell through 1.1550 to a session low of 1.1520, well below the spike seen on Monday’s open. With the USD on the front foot, the pound retreated, sliding below 1.3350 and eyeing a break below 1.33 before finding support. In contrast, the yen pushed back on losses seen through Monday, steadying the ship and forcing the USD back below 148.50.Our attention now turns to euro Area GDP and Bank of Canada policy meeting ahead ADP employment data and the Fed July policy meeting.
Expected Ranges
- AUD/USD: 0.6480 - 0.6620 ▼
- AUD/EUR: 0.5580 - 0.5680 ▲
- GBP/AUD: 2.0400 - 2.0700 ▲
- AUD/NZD: 1.0880 - 1.1000 ▲
- AUD/CAD: 0.8900 - 0.9000 ▲