Aussie dollar continues to trade above US$0.65
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Daily Currency Update
The Australian dollar is slightly weaker this morning when valued against the Greenback, currently trading at US$0.6533, at the time of writing. The Aussie dollar continues the week on a soft trajectory ahead of Retail Sales and inflation data today that will guide market expectations further on the Reserve Bank of Australia’s (RBA) next moves.Yesterday on the data front, new dwelling approvals in Australia have sunk to their lowest in 12 years, as developers battle high interest rates and rising labour and material costs. The Australian Bureau of Statistics reported on Tuesday for the year to June 162,892 houses and apartments secured approval, down 8.5% on the previous year and the least since 2011-12. In June, total dwellings approved fell 6.5% to 13,237 – worse than the 2.3% drop expected by economists. Private sector residences, excluding houses, dropped by a fifth to their second-lowest monthly level since January 2012.
Today all eyes will be on the Australian Bureau of Statistics quarterly Consumer Price Index (CPI). Consumer prices account for a majority of overall inflation. Inflation is important to currency valuation because rising prices lead the central bank to raise interest rates out of respect for their inflation containment mandate.
Despite the visible vulnerability in the Australian economy, the RBA delays its rate cuts due to persistently high inflation. This stance could potentially limit further depreciation of the AUD. On Wednesday we will also see the latest monthly Retail Sales figures which is the primary gauge of consumer spending, which accounts for the majority of overall economic activity.
Key Movers
The Federal Reserve's benchmark, short-term rate, has held a 23-year high of 5.25% to 5.5% since July 2023. This pause follows aggressive rate hikes dating back to March 2022, a period in which the Central Bank raised rates 11 times. The goal, at that time, was to make borrowing more expensive to cool down the economy and surging inflation. After its two-day meeting on Wednesday, the Fed is expected to maintain current interest but may signal potential policy easing as soon as September.The U.S. rate futures market has fully priced in a rate cut in September. Lower interest rates reduce the opportunity cost of holding the non-yielding bullion. Traders are also anticipating key US data this week. Nonfarm Payrolls are expected to increase by 175,000 jobs in July, down from 206,000 in June. The Unemployment Rate is projected to remain steady at 4.1%, matching 2021 highs. Additionally, Average Hourly Earnings are forecasted to rise by 0.3% month-over-month.
The British pound continues to weaken as market speculation for the Bank of England (BoE) to begin reducing interest rates from the August meeting, which will be announced on Thursday, has improved further. Trades see a little over 58% chance that the BoE will cut its key borrowing rates by 25-basis points (bps) to 5%, Reuters reported.
The United Kingdom’s (UK) annual service inflation remained higher at 5.7% in June than the bank’s forecast of 5.1%. While the odds of a cut in borrowing have shortened, with a narrow majority of Citi analysts expecting a reduction, few outside the Square Mile believe a change is imminent. The Bank has a mandate from parliament to maintain inflation at about 2% over the longer term. And while the consumer prices index was 2% in May and June, there was concern that wage pressures would reverse the trend.
Expected Ranges
- AUD/USD: 0.6450 - 0.6650 ▼
- AUD/EUR: 0.5950 - 0.6150 ▼
- GBP/AUD: 1.9500 - 1.9700 ▲
- AUD/NZD: 1.0950 - 1.1150 ▼
- AUD/CAD: 0.8950 - 0.9150 ▼