AUD steady despite dovish lilt from RBA governor

Daily currency update

The Australian dollar tracked sideways through trade on Tuesday unable to capitalise on an upturn in positive risk sentiment. Global rates and equities enjoyed strong gains while moves across currency markets were largely muted forcing the AUD to trade within a narrow band, bouncing between US$0.6935 and US$0.6995. With little of note on the macroeconomic ticket, our attentions shift to the RBA policy meeting minutes and commentary from Reserve Bank Governor Lowe. Having adopted a hawkish outlook, markets were keenly attuned to any signal a 75-basis point hike was on the table. In that light, the minutes and Lowe failed to meet expectations affirming the bank’s commitment to normalising inflation and pointing to a 25 or 50 basis point hike next month. The somewhat dovish tone had little impact on the AUD and broad USD weakness overnight helped the AUD edge toward US$0.70. Our attentions today turn to the UK and Canadian CPI data sets. Inflation is expected to remain elevated and keep pressure on central banks to deliver a faster pace of interest rate tightening.

Key movers

Price action across major currencies was largely muted through trade on Tuesday with the exception of the Japanese yen which remains under increasing downward pressure as the Bank of Japan (BoJ) fails to keep pace with other major central banks. The USD continued its advance against the yen, climbing 1% and marking fresh 24-year highs at ¥136.45. The BoJ continues to intervene in the bond market, buying large chunks of Japanese Government Bonds in June in a bid to control its yield curve. As markets continue to test policymakers’ resolve the yen continues to mark new lows. The risk now is officials will abandon the current monetary policy platform, prompting a massive JPY rally and broader market correction. Across other majors, the USD is weaker overnight as the euro crept above US$1.0550 and the pound held onto gains above US$1.2250. Our attentions turn now to UK and Canadian CPI data and testimony from Federal Reserve Chair Jerome Powell in front of a Senate panel. How he handles the inevitable grilling from lawmakers may provide some insight into Fed policy moving forward.

Expected ranges

• AUD/USD: 0.6880 – 0.7030 ▲
• AUD/EUR: 0.6570 – 0.6650 ▼
• GBP/AUD: 1.7480 – 1.7720 ▲
• AUD/NZD: 1.0950 – 1.1050 ▲
• AUD/CAD: 0.8980 – 0.9050 ▼