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Aussie higher ahead of RBA

Tuesday 3 August, 2021

Daily Currency Update

The Australian Dollar is trading higher against its US counterpart after the bank holiday in Australia yesterday. The AUD/USD rate rose from 0.7340 to 0.7382 through trade yesterday, possibly signaling a change in fortunes for the domestic unit which has been under selling pressure for the last few weeks as the delta variant delivered widespread lockdowns and lower economic activity. The New Zealand Dollar was not able to rise in line with the Australian dollar, with NZD/USD trading sideways between 0.6960 and 0.6990, still below the key 0.7000 handle. This saw AUD/NZD rise from 1.0540 to 1.0565 after touching its lowest levels since December during Friday’s session. As we touched on yesterday, the key risk event this week for the Australian Dollar is today’s monetary policy announcement from the Reserve bank of Australia. Last month, the central bank indicated they would be looking to reduce the scale of their bond purchasing program from $5b per month to $4b per month as the economic picture was looking rosier than they had predicted. A lot can change in a month, and with the Delta variant of COVID19 reeking havoc throughout Australia, forcing widespread lockdowns and raising concerns about Q3 economic growth levels, many analysts are predicting that the central bank will be forced to reverse its decision today. In order to support the economy through this period, an increase of asset purchases to $6b could be on the table and this is the base case being priced by markets at present. Today’s session is set to be a big one for the Australian Dollar as we will hopefully get some clarity on whether the market has changed its mind about the prospects for the domestic unit or alternatively, is the recent rally just reflective of investors squaring off short positions ahead of today’s meeting after weeks of declines.

Key Movers

As we alluded to above, the main story being digested by markets and moving prices has been the recent weakness in Purchasing Manager’s Index (PMI) surveys. These monthly surveys, which are leading economic indicators of trends in the manufacturing and service sectors, reflect the outlook for business conditions from the perspectives of analysts, investors and company managers. Overnight, we had a US ISM manufacturing Survey which after five months of strong reads, fell from 60.6 to 59.5, missing market expectations of 61.00. Many participants are pointing to production constraints, shortages of raw materials and difficulty finding labour as drags on their manufacturing plans. The release, which comes after weaker than expected PMI’s out of Europe and China, raises an important question for markets to ponder; has global growth peaked? The post PMI price action was interesting as yields were pushed lower, oil prices declined and the Japanese Yen was stronger. The US 10-year yield fell sharply from 1.24% to below 1.15%, althgouh it has recovered slightly since then. The possibility of weaker demand in a lower growth environment saw oil prices fall 3% to 72.30, dragging the tightly correlated Canadian Dollar 0.3% lower throughout trade. Consistent with a risk off backdrop, USD/JPY was pushed lower to trade close to the key 109.00 handle.

Expected Ranges

  • AUD/USD: 0.7300 - 0.7415 ▲
  • AUD/EUR: 0.6150 - 0.6240 ▲
  • GBP/AUD: 1.8800 - 1.8975 ▼
  • AUD/NZD: 1.0450 - 1.0600 ▲
  • AUD/CAD: 0.9130 - 0.9250 ▲