It could be a wild session for the Australian dollar today

Mark Kolbe/Getty Images
  • The Australian dollar had a quiet start to the week, finishing mixed against the major crosses.
  • The data calendar heats up today with major releases coming from Australia, China, Japan, the Eurozone and United States.
  • The main event in Asia will be the Bank of Japan’s July monetary policy decision. The risk is the bank will do absolutely nothing.

The Australian dollar had a slow start to the week, finishing mixed against the major crosses as traders eyed of bigger events ahead.

Here’s the scoreboard as at 7am in Sydney.

AUD/USD 0.7407 , 0.0007 , 0.09%
AUD/JPY 82.26 , 0.23 , 0.28%
AUD/CNH 5.0568 , 0.0162 , 0.32%
AUD/EUR 0.6327 , -0.0009 , -0.14%
AUD/GBP 0.5639 , -0.0003 , -0.05%
AUD/NZD 1.0851 , -0.0017 , -0.16%
AUD/CAD 0.9654 , -0.0017 , -0.18%

As the scoreboard suggests, the moves on Monday were contained and largely irreverent, largely reflecting tweaks to market positioning ahead of a swathe of major economic data and central bank releases.

The key theme of the session was modest strength in the euro, helped by firm inflation reports from Germany and Spain and continued dip-buying after the common currency slumped last week. The strength in the euro weighed on the greenback, helping the AUD/USD grind higher from lows struck earlier in the day.

Investing.comAUD/USD Hourly Chart

After a slow start to the week, the economic events calendar begins to heat up today, headlined by Bank of Japan’s (BoJ) July monetary policy decision that will arrive in the second half of Asian trade.

Given widespread speculation about what it may do, the biggest risk today is that the BoJ will do absolutely nothing.

“Our base case scenario is for the BoJ to make no policy change today,” says Elias Haddad, Senioir Currency Strategist at the Commonwealth Bank.

“The risk is the BoJ modifies its yield curve control settings because of concerns over lower Japanese bank profitability. The BoJ may drop the negative interest rate of 0.1% applied to the policy rate balance in current accounts held by financial institutions at the BoJ.

“The BoJ could also abandon its annual objective of accumulating ¥80 trillion of JGBs and/or lift its target yield for 10 year JGBs from currently ‘around’ 0%.”

Haddad says any of these policy changes are likely to be interpreted by markets as a step towards less monetary policy accommodation, dragging USD/JPY and AUD/JPY lower.

For a central bank that is already struggling to muster any inflationary pressures whatsoever, that would be an undesirable outcome.

There is no set time for the BoJ release, although usually arrives around 1pm AEST. The general rule of thumb is the longer the wait, the more likely it is that policy has been changed.

Before that event arrives, markets will also receive a swathe of major economic data releases from Australia, Japan and China.

Locally, building approvals and private sector credit figures for June will both be released at 11.30am AEST.

Regionally, China will release a raft of PMI reports at 11am AEST while Japanese unemployment and industrial production data will arrive between 9.30am to 9.50am AEST.

Later in the session, highlights include Q2 GDP, unemployment and inflation data from the Eurozone, German retail sales and unemployment, Italian and Spanish Q2 GDP along with consumer spending, income and core PCE inflation data from the United States.

It’s a big data day ahead of two massive central bank events later in the week.

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