Aussie upturn stalls as markets wrestle contrasting drivers
|AUD - Australian Dollar
The Australian dollar remained largely range bound through trade on Tuesday, bouncing between 0.6945 and 0.6980. The AUD found support in broader USD softness as market expectations for a Fed policy shift and multiple interest rate cuts sparked a bout of dollar selling. Having traded toward key supports at 0.6830/50 the AUD has regained some short-term upward momentum following last weeks Fed signal it is ready to start lowering borrowing costs in a bid to stimulate broader economic softness. With Futures pricing in a quarter point cut in July the immediate downward pressure on the AUD seems to have lifted as the Fed joins the RBA and the conglomerate of major central banks in loosening monetary policy conditions.
While yields suggest there is still room for the world base currency to fall, AUD upside has been hamstrung by demand for risk as increasing geo-political tensions and sustained trade hostilities weigh on investors appetite for emerging and commodity led currencies. Coupled with softness across domestic indicators and whisperings a program of quantitative easing may be needed to spark local growth and the AUD has struggled to extend moves to and through 0.70. Upside momentum will depend on further deterioration in US economic conditions and/or a resolution to trade conflicts. Attentions today turn to US Core Durable Goods Orders ahead of the weekends G20 summit as key markers to the future direction of both.
Key Movers
The US Dollar fell through trade on Tuesday when compared with most major trading partners, touching three-month lows against the Euro, which drove the broader dollar index through 96.50 and toward a break below 96. Persistent repositioning on expectations the Fed will cut rates in July and again before the year is out have hampered the worlds base currency as analysts adjust long term USD expectations and play catch up with yield curve and futures indicators.
Sterling bounced off one-month highs on Tuesday, giving up gains enjoyed in the wake of last weeks Bank of England policy meeting, moving below 1.27 to touch 1.2670. Concerns the outcome of the Conservative Party leadership contest will spur a no-deal Brexit weighed on investors. Front runner, Boris Johnson is a known Euro-sceptic and his emergence as the likely next PM has forced markets to become more alert to the prospect of a deal Brexit.
Expected Ranges
AUD/USD: 0.6850 - 0.6980 ▲
AUD/EUR: 0.6080 - 0.6180 ▲
GBP/AUD: 1.8130 - 1.8380 ▼
AUD/NZD: 1.0420 - 1.0580 ▼
AUD/CAD: 0.9080 - 0.9220 ▼
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