Dollar Dips on dovish RBA minutes and stronger US inflation

Australian Dollar:

The Australian Dollar opens lower this morning having fallen at its fastest rate in almost a month. The dovish nature of Reserve Bank meeting minutes quashed expectations of a near term rate rise and sent the Aussie spiralling below 0.9350. As it stands the RBA’s official cash rate sits at 2.5%, an appropriate level according to policy makers. The June 3 minutes showed Reserve Bank representatives see “substantial falls in mining investment, below average growth of public demand and subdued non-mining investment” leading to below trend economic growth for the rest of the year. With Central Bank policy a major driver of direction within markets at present the indication that rates will remain stagnant for the near to medium term was the catalyst needed to trigger an AUD exodus. Strong US inflation data for May only compounded the dip and AUD opens this morning at 0.9335.

• We expect a range today between 0.9300 – 0.9400

New Zealand Dollar:

The Kiwi retreated throughout trade on Tuesday as a quiet domestic docket left it open to offshore stimuli. A stronger than expected US inflation reading for the month of May lead to a shift in monetary policy outlook as analysts speculate whether a premature tightening is possible. The local session today is dominated by the current account report however we expect the NZD to maintain a tight range in the lead up to the conclusion of the FOMC meeting and Federal Reserve’s Monthly statement.  

• We expect a range today between 0.8620 – 0.8700 

Great British Pound:

Sterling opens the Australasian session marginally lower as weaker UK inflation puts an end to a four day rally. CPI wrote in at 1.5%, the slowest annualised paced in four and a half years according to the office of National statistics. The softer reading marks the 6th consecutive month wherein inflation has been inside the BoE’s 2% target. Focus will now turn to the MPC’s June meeting minutes for signs that Bank of England monetary policy is shifting away from its current accommodative stance. Any hint or indication of a pre-emptive rate rise will lead to further Sterling strength leading into the Federal Reserve’s monthly statement.     

• We expect a range today between 1.8100 – 1.8210

Majors:

The USD strengthened against the majority of its 16 major counterparts as a stronger than expected inflation report bolstered expectations of a possible rate rise. High inflation could bring about a more Hawkish bias to the Federal Reserve’s decision making and markets are keenly watching for any sign the Fed will move away from its current accommodative stance when its 2 day policy meeting concludes today. USD/JPY moved back above 102 while EUR/USD moved below 1.3550. With little on the economic calendar for JPY or EURO the main driver leading into the rest of the week will be FOMC economic projections and accompanying Fed Statement. As Central Bank policy becomes an increasing driver of currency direction any hawkish divergence from the current policy stance should correlate in a USD upswing.

Data releases

• AUD: CB Leading Index and MI leading Index
• NZD: Current Account
• JPY: Monetary Policy Meeting Minutes and Trade Balance
• GBP: MPC Asset Purchase Facility and Official Bank Rate Votes, MPC members Weale and Haldane Speak.
• EUR: German 10y Bond Auction.
• USD: Current Account, Crude Oil Inventories, FOMC Economic Projections, FOMC Statement, FOMC Press Conference and Federal Funds Rate.