Upbeat RBA fuels AUD rally

Australian Dollar:

The Australian dollar rallied through trade on Tuesday after the Reserve Bank opted to maintain its current policy stance and leave rates unchanged. While the decision was largely anticipated the Aussie advanced on commentary from RBA governor Glenn Stevens suggesting the Central Bank was unperturbed by threats to growth prospects, thereby suppressing conjecture looser monetary policy was on the table. With interest rates now at record lows it seems the RBA is reluctant to force the benchmark borrowing rate lower and we anticipate interest rates will remain accommodative into the end of the year. The AUD jumped through 0.71 and touched of 0.7175 before consolidating marginally lower this morning buying 0.7169 U.S Cents. Attentions now turn to the Bank of Japan and suggestions further policy easing will be announced this afternoon.

• We expect a range today of 0.7070 – 0.7200

New Zealand Dollar:

The New Zealand Dollar jumped higher through trade on Tuesday amidst suggestions the U.S Federal Reserve will delay policy adjustments and Global Dairy prices rallied. Recovering commodity and dairy worth (New Zealand’s biggest export) helped the Kiwi move through 0.65 touching intraday highs of 0.6556. The rally in the price of whole milk powder helped stave of fears of an economic slowdown driven by the dairy sector and lowered expectations the RBNZ will cut rates when it next meets at the end of the month. Attentions now turn to The Bank of Japan for additional monetary policy guidance as diverging interest rate expectations continue to manipulate direction.   

• We expect a range today of 0.6450 – 0.6600

Great British Pound:

The Great British pound rallied through trade on Tuesday bolstered by an expansion in the U.S trade deficit and an extension in the timeline of expectation that accompanies Federal Reserve monetary policy. The U.S trade deficit widened the most in 5 months in August and when coupled with last week’s soft labour market data and a downgrade of global growth prospects by the IMF investors have been forced to extend their expectations for policy amendments. With diverging monetary policy driving direction the revision of U.S IR expectations into 2016 has forced the selloff of USD longs and helped fuel some support for Sterling.  Attentions now turn to Manufacturing Production for domestic direction through Wednesday.

• We expect a range today of 2.1050 – 2.1450

Majors:

The US Dollar edged lower against the majority of major currency counterparts as expectations surrounding the timing of a Federal Reserve rate hike are revised and the timeline extended. A widening in the Trade Deficit coupled with last week’s poor labour market data has forced investors to amend their expectations for rate adjustments with many now looking to March 2016. This extension has hurt the short term outlook for the Greenback as the expected investment inflows that would ordinarily accompany a rate hike have been repositioned and USD long bets revised. The Euro rallied through 1.1200 and 1.1250 through trade yesterday while the JPY struggled to break higher. The BoJ today enters its second day of monetary policy meetings and expectations the central bank will introduce further policy easing measures have capped gains. Attentions today turn to the Bank of Japan’s policy statement and press conference for direction and risk flows.  

Data releases:

• AUD: AIG Construction Index
• NZD: No Data
• JPY: Monetary policy Statement and BoJ Press Conference.
• GBPManufacturing Production m/m, Industrial Production m/m and NIESR GDP Estimates.
• EUR: German Industrial Productions, French Trade Balance and German 10 Year Bond Auction.
• USD: Crude Oil Inventories, Consumer Credit and 10 Year Bond Auction.