The Australian dollar continues to dance to its own tune despite another lift in risk aversion

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  • The Australian dollar continues to move to its own tune, paying scant attention to another lift in investor risk aversion.
  • Markets put the probability of a rate cut from the US Federal Reserve by September at 80%. Further cuts next year are also priced in.
  • Australian business investment and building approvals data will be released on Thursday. Revised US GDP figures are the main highlight in the second half of the session.

The Australian dollar slipped against the greenback but rose against the major crosses on Wednesday, paying scant attention once again to another bout of selling in global stockmarkets.

Here’s the scoreboard at 7am in Sydney on Thursday. All data is from Refinitiv.

AUD/USD 0.6915 , -0.0007 , -0.10%
AUD/JPY 75.77 , 0.07 , 0.09%
AUD/CNH 4.7936 , 0.0032 , 0.07%
AUD/EUR 0.6211 , 0.0009 , 0.15%
AUD/GBP 0.5476 , 0.0006 , 0.11%
AUD/NZD 1.0617 , 0.0041 , 0.39%
AUD/CAD 0.9348 , 0.0006 , 0.06%

The AUD/USD once again traded in a narrow range, lifting to as high as .6931 before sliding to .6901 midway through through the North American session.

It climbed off the lows as U.S. stockmarkets rebounded from steep losses at the open that were sparked by renewed concern over another escalation in the trade war between the United States and China.

The modest lift in risk aversion late in the session coincided with a recovery in U.S. 10-year bond yields which climbed from 2.21% — the lowest level since September 2017 — to 2.26%.

The reversal in U.S. bond yields followed a weak bond auction for seven-year treasuries, said Rodrigo Catril, senior FX strategist at the National Australia Bank.

“A soft seven-year bond auction … sparked a reversal in fortunes with the 10-year tenor jumping over five basis points,” he said in a note released on Thursday. “The lack of demand in the action could be a sign of rally exhaustion.”

Investing.comAUD/USD Hourly Chart

The inability for the Aussie to slide further against the greenback may reflect growing expectations that the U.S. Federal Reserve will cut its funds rate before the year is out.

“Market expectations of Fed rate cuts have continued to build with the market now pricing an almost 80% chance of a September rate cut, with 40 basis points priced by the end of this year and over three cuts by the end of 2021,” Catril wrote.

After a dearth of local economic news to start the week, the Australian data calendar will spring back to life on Thursday with the release of private sector capital expenditure (CAPEX) figures for the March quarter along with building approvals for April.

Both data points will arrive at 11.30am AEST.

Of the two, the CAPEX report appears the most likely to generate short-term volatility in the Aussie. This 10-second guide has more on what to look out for in the release, including what parts will feed into next week’s Australian GDP report.

Outside of Australia, other highlights on Thursday include New Zealand building consents and federal budget along with revised Q1 GDP, goods trade balance and jobless claims from the United States.

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