Australian dollar resilient in face of robust USD
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Daily Currency Update
Against a backdrop of a broadly stronger US dollar, the AUD suffered only modest losses and remains well and truly range bound between US$0.66 and US$0.67. With little of note on the domestic macroeconomic ticket, our attentions turned offshore. The AUD came under some selling pressure after the PBOC (Peoples Bank of China) set the yuan’s reference rate at its weakest level since November. Ongoing concern surrounding China economic outlook has weighed on Chinese yields and elevated pressure on the yuan. With key officials suggesting the yuan could be allowed to weaken further, we are keenly watching for any spillover into near term AUD value. A softer yuan could prove to be a significant headwind for the AUD and its bid to push back above US$0.67. Having edged off domestic highs above US$0.6675, the AUD tracked below US$0.6650 overnight on the heels of a broadly stronger US dollar and uptick in US treasury yields. While US data sets printed softer than expected, US economic exceptionalism remains intact, bolstering demand for US treasury yields and the dollar as a key haven play.Our attentions turn now to Japan CPI data and a host of PMI data releases across the US and Europe.
Key Movers
There has been plenty to digest and absorb through the last 24 hours with two key central bank policy updates and a string of macro data sets guiding direction. As expected, the Bank of England elected to leave rates on hold, yet surprised markets in suggesting a rate cut may be issued as early as August. The Monetary Policy Committee voted 7:2 to hold rates, with the minutes revealed that for some of the seven voters that opted to leave rates on hold the decision was “finely balance”. With inflationary pressures continuing to moderate, the chance of an August rate cut jumped to over 60%, well up from the just 30% probability leading into the meeting. The pound retreated on the back of the dovish hold, down near half a percent.In other news, the Swiss National Bank elected to cut rates for the 2nd consecutive time, driving CHF losses, while Norway’s central bank left rates unchanged helping fuel NOK gains as policy makers indicated rates would remain elevated until the end of the year.
Soft US domestic data forced US treasury yields lower, but the move was not sustained with 2- and 10-year rates closing higher for the day. The extension in US rates weighed on the yen and the dollar pushed back through 159, elevating calls for another round of intervention. With JPY softness amplified by the Bank of Japan’s reluctance to adjust and commit to monetary policy change, the need to defend the embattled currency rises.
Our attentions turn now to Japan CPI data and a host of PMI data releases across the US and Europe.
Expected Ranges
- AUD/USD: 0.6580 - 0.6680 ▼
- AUD/EUR: 0.6150 - 0.6250 ▲
- GBP/AUD: 1.8900 - 1.9200 ▼
- AUD/NZD: 1.0820 - 1.0920 ▲
- AUD/CAD: 0.9080 - 0.9220 ▼