RBA leads Aussie break out

Australian Dollar:

The Australian dollar rallied strongly Tuesday bolstered by a shift in RBA commentary, an uptick in commodity prices and an improvement in domestic retail sales. The AUD found early support in a better than expected retail sales performance while oil, iron ore and copper prices all bounced higher. Buying 0.7291 leading into the RBA rate statement the AUD kicked upward as the central banks comments were absorbed. The removal or rhetoric suggesting a deeper currency depreciation was necessary spurred investor action and assumptions the Reserve Bank now sees the currency trading closer to fair value. The Aussie moved through 0.73 and continued breaking barriers of technical resistance touching intraday highs of 0.7428 before comments from Fed officials bolstered Greenback fortunes and the commodity driven unit closed the day buying 0.7382 U.S cents. Attentions now turn to domestic employment data Thursday ahead of critical U.S non-farm payroll numbers Friday as markers for direction moving into the weekend. With commodity prices still under pressure the AUD advance may be seen as corrective and the overriding bearish trend remains intact for the time being.    

• We expect a range today of 0.7250 – 0.7450

New Zealand Dollar:

The New Zealand dollar offered little to incite investor action through Tuesday as the currency struggled to break through 0.66. Bolstered by a bounce in commodity prices and marginal improvement in the Global Dairy Trade Index the currency found some support throughout domestic trade however comments from Federal Reserve Official and FOMC voting member Dennis Lockhart drove the unit nearer 6 year lows. Attentions now turn to domestic employment data for direction through Wednesday and mid-week trade as analysts seek a catalyst to force the Kiwi outside recent ranges.

• We expect a range today of 0.6480 – 0.6680

Great British Pound:

The Great British Pound enjoyed a mixed session Tuesday bouncing through a 75 point range and tracking lower as investors grappled with construction data and Fed commentary. Softer than expected construction PMI coupled with comments from Fed officials suggesting a policy adjustment was imminent forced the Cable through 1.56, touching intraday lows of 1.5566. Attentions now turn to Services data for direction ahead of Thursdays Bank of England policy announcement.

• We expect a range today of 2.1000 – 2.1400 

Majors:

The US Dollar rallied through trade on Tuesday bolstered by comments from Federal Reserve Bank of Atlanta President and FOMC voting member Dennis Lockhart.  The Fed official told the Wall Street Journal “it would take a significant deterioration in economic performance” for him to withdraw support for a September policy adjustment. Typically seen as a centrist Lockhart is considered a swing vote amongst committee member and his shift/adoption of a hawkish tone suggests the world’s largest Central Bank is prepared to raise rates for the first time in almost a decade. The Dollar Index jumped 0.5% as the Greenback advanced against most major currency counterparts. The Euro fell through 1.09 touching intraday lows of 1.0878 as markets adjusted monetary policy expectations and recovered from the opening of the Greek Stock Exchange.

Investor focus remains squarely fixed on Friday’s non-farm payroll numbers and a print on or about analysts estimates (225,000) will likely help fuel additional Greenback support as markets continue to price in a September rate adjustment. At present 48% of traders surveyed by Bloomberg are anticipating a Fed policy amendment with the average fund rate expected to be 0.375 by years end. Interim direction will come from services data across the US and European Monetary Union today.  

Data releases:

• AUD: AIG Services Index
• NZD: GDT Price Index, Employment Change Q/Q, Unemployment Rate and Labour Cost Index.
• JPY: No Data
• GBP: Services PMI
• EUR: Spanish, Italian, French, German and EMU Services PMI, Italian Industrial Production and Retail Sales.
• USD: Trade Balance, Final Services PMI, ISM Non-Manufacturing PMI and Crude Oil Inventories