Aussie dollar falls below 68 US cents

Daily Currency Update

The Australian dollar is slightly weaker this morning trading just below 68 US cents on modest USD weakness. The AUD/USD pair attracted some buying on Friday and recovered a part of the previous day's losses, around 0.6770 level, the lowest level since July 18. Last week on the data front July retail sales, somewhat of a lag indicator, were much stronger than forecast last Monday, coming in at 1.3% month-on-month instead of 0.3% anticipated and 0.2% previously. On Tuesday building approvals data revealed a -17.2% crash in July compared to June, way below expectations of -3.0% and -0.7% in the prior month. Higher interest rates appear to be impacting the Australian housing market, with data from Corelogic on Thursday showing the largest monthly depreciation in August for forty years. Sydney, the largest property market, fell 2.6% while prices across the nation fell 1.6% for the month.

Looking ahead this week on the data front and economists are forecasting a 50-basis point (bp) hike in the cash rate target by the Reserve Bank of Australia (RBA) at their meeting this Tuesday. However, futures markets are pricing in closer to 40 bp, which would put the cash rate at 2.25%. Prior to the pandemic, the RBA maintained the rate in multiples of 0.25%. It is currently off that schedule at 1.85%. Australia’s trade balance for July is due out on Thursday, but it is unlikely to match June’s astronomical and record-breaking AUD 17.67 billion. Forecasts are still looking for circa AUD 10 billion, a significant contribution to the nation's bottom line. A lower AUD/USD exchange rate adds to the contribution from exports.