It could be a wild session for the Aussie dollar with risk events aplenty

Ezra Shaw/Getty Images
  • The Australian dollar eased lower against most major crosses on Tuesday, weighed down by an ugly plunge in Australian business operating conditions.
  • Australia’s Q4 CPI report will be released today.
  • Trade talks between the US and China resume in Washington. The US Federal Reserve will also announce its January monetary policy decision.

The Australian dollar eased lower against most major crosses on Tuesday, dragged lower by an ugly plunge in Australian business conditions late last year.

Here’s the scoreboard at 8am in Sydney on Tuesday.

AUD/USD 0.7150 , -0.0015 , -0.21%
AUD/JPY 78.17 , -0.17 , -0.22%
AUD/CNH 4.8241 , -0.0157 , -0.32%
AUD/EUR 0.6251 , -0.0018 , -0.29%
AUD/GBP 0.5463 , 0.002 , 0.37%
AUD/NZD 1.0467 , -0.0019 , -0.18%
AUD/CAD 0.9495 , -0.0007 , -0.07%

After opening the session at .7165, the AUD/USD sank to as low as .7139 following the release of the National Australia Bank’s (NAB) Australian Business Confidence Survey that showed operating conditions plunged by the most since the GFC in December.

“[We] caution against reading too much into a single monthly reading, and note that the volatility in equity markets in December and some noise probably affected the result,” said Rodrigo Catril, Senior FX Strategist at the NAB.

“The next NAB Survey will carry greater importance than normal, and if the survey doesn’t bounce back, it points to a more subdued economic outlook than that embedded into the RBA’s forecasts.”

After falling across the board on the report, the AUD/USD began to recover in the second half of Asian trade, partially helped by remarks from a RBA Board Member Ian Harper that he still believes the next move in official interest rates is likely to be higher.

Financial markets, despite Harper’s remarks, continue to disagree with that view, continuing to price a greater than 50% chance that the RBA cash rate will be reduced by 25 basis points by the end of the year.

After climbing to as high as .7176 in European trade, the AUD/USD retreated in the latter parts of the session, failing to benefit from a steep gain in crude oil and further strength in iron ore prices, especially among lower grades.

Soft US economic data was also largely overlooked by traders with consumer confidence and US house price growth both easing to more than one-year lows.

Investing.comAUD/USD Hourly Chart.

Against the crosses, the Aussie also lost ground against all major crosses except the British pound, the latter weighed down by the UK Parliament failing to pass an amendment to Theresa May’s Brexit deal that would prevent the UK from leaving the EU without some form of deal.

Turning to the session ahead, it will be a busy one for traders with a series of important data releases, monetary policy decisions and trade-related headlines to navigate.

Domestically, all attention will be on the release of Australia’s Q4 CPI report that will be released at 11.30am AEDT.

Headline inflation is expected to lift by 0.4%, a result that will see the year-end increase slow to 1.7% without revisions to prior data.

For underlying inflation, markets are looking for a quarterly gain of 0.45%, leaving the increase over the past year unchanged at 1.75%, the same level forecast by the RBA.

This 10-second guide has more on what to look out for in the report, including why the risks to both the headline and underlying CPI figures could be to the downside.

Outside of Australia, markets will also receive Japanese retail sales and consumer confidence, Eurozone consumer confidence, German consumer confidence and CPI, UK consumer credit growth along with ADP Private sector payrolls and pending home sales from the United States.

The US Federal Reserve will also announce its January monetary policy decision at 6am AEDT. No change in interest rates is expected, nor will any updated any economic projections be released. However, FOMC Chair Jerome Powell will hold a press conference with most attention likely to fall on what the Fed intends to do with the size of its balance sheet moving forward.

Finally, trade talks between the US and China also get underway in Washington, ensuring a series of related headlines will arrive in the second half of the session.

“It is clear there is a long road ahead to achieving meaningful progress between the two countries, and while steps forward are possible, this week is unlikely to bring the certainty markets are looking for,” said strategists at ANZ Bank.

“Trade uncertainty is playing a role in the Fed’s decision to pause interest rate rises for the moment.

“We expect the Fed to confirm an interim pause at its meeting tomorrow. But for now we do not expect it to abandon its view that the economy is in a good spot and that further gradual rate increases may be needed.”

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