Is this the beginning of a USD repositioning?

Daily Currency Update

The Australian dollar capitalised on ongoing USD softness through trade on Tuesday as markets continue to position for a slower pace of Fed rate adjustments. Having tracked sideways through much of the domestic session the AUD climbed off intraday lows at US$0.63 marking session highs north of US$0.64 following another string of underwhelming US data points. A 2nd consecutive monthly fall across house prices, coupled with a decline in consumer confidence and a downturn across key manufacturing indicators drove US 10 year and 2-year rates lower while driving equities and risk assets higher. With markets largely ignoring the national budget the promise of a slower pace of rate adjustment has fueled demand for the AUD. While the fallout from Chinese President Xi’s politburo re-shuffle continues to cast a pall over Chinese investment opportunities the AUD was able to navigate through a spillover and broader CNY weakness, a possible signal that the strong correlation between Yuan performance and the AUD may be breaking. A shift in AUD and CNY connectivity coupled with a USD downturn on the heels of a Fed pivot could open the door to a longer run AUD recovery. Our attentions now remain affixed to today’s quarterly CPI update, global rates, CNY performance and next weeks all important RBA and Federal Open Market Committee policy updates.