The Australian dollar remains a sell-on-rallies prospect

Phil Walter/Getty ImagesAUD — going nowhere for the moment.
  • The Australian dollar remains range-bound, failing again to sustain an early rally on Monday.
  • Higher US bond yields, along with signs of further divergence between US and Chinese monetary policy settings, helped to support the greenback on Monday to the detriment of the Aussie dollar.
  • Flash PMI reports dominate the economic calendar today. However, in Asia, moves in the Japanese yen and Chinese yuan appear more likely to influence the Aussie.

The Australian dollar remains a sell-on-rallies prospect for the moment, giving back early gains against the greenback on Monday to close deep in the red.

However, it performed better against the crosses.

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

AUD/USD 0.7380 , -0.0041 , -0.55%
AUD/JPY 82.17 , -0.28 , -0.34%
AUD/CNH 5.0215 , 0.0046 , 0.09%
AUD/EUR 0.6313 , 0.0002 , 0.03%
AUD/GBP 0.5633 , 0.0001 , 0.02%
AUD/NZD 1.0875 , 0.0007 , 0.06%
AUD/CAD 0.9717 , -0.0033 , -0.34%

After rising in early trade, helped by a spike in Japanese bond yields which also helped to support the yen to the detriment of the US dollar, the AUD/USD gave back ground later in the session, undermined by renewed weakness in the offshore traded yuan, or CNH.

“USD/CNH lifted to around 6.8225, but not quite as high as Friday‚Äôs intra day high,” said Richard Grace, Chief Currency Strategist at the Commonwealth Bank.

“It appears Chinese policy makers may be moving to provide the economy with support.

“First, the authorities are not aggressively fighting the depreciation in the CNY at the daily fix. Second, the authorities are providing the financial system with more funds. The PBoC injected a record CNY 502 billion (USD 74 billion) of funds into the banking system via one year loans through its medium term lending facility (MLF).”

Signs of further monetary policy divergence between China and the US helped the greenback recover from earlier losses, contributing to the reversal in the AUD/USD seen in the hourly chart below.

Higher US bond yields — linked to the spike in Japanese government bond yields earlier in the session — also underpinned the greenback’s gains, weighing on commodity prices in the process.

“[The] USD strengthened as US treasury yields followed the lead set in Japanese government bonds yesterday,” Grace said.

“By the close, US two-year bond yields were up 4 basis points to 2.62%, and US 10-year yields were up nearly 7 basis points to 2.95%.”

Investing.comAUD/USD Hourly Chart

Turning to the day ahead, it’s yet another quiet one for major economic events, likely ensuring that movements in Japanese and Chinese financial markets will continue to influence the Aussie.

Domestically, ANZ will release its weekly Australian consumer confidence reading at 9.30am AEST. The only other release of note comes from Japan with July’s flash manufacturing PMI report arriving at 10.30am AEST.

The PMI focus continues later in the session with manufacturing and services reports from the Eurozone and US also scheduled, providing markets with a snapshot of how activity levels fared in the early parts of the month.

Aside from the PMI reports, other data highlights today include UK industrial orders from the CBI along with house prices and Richmond Fed manufacturing index in the United States.

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