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- The Australian dollar remains pressured following a dovish shift from the RBA last week.
- At 2.2%, the decline in the AUD/USD was the largest in percentage terms since early October last year.
- The economic calendar is quiet on Monday. Chinese markets resume trade following a week-long holiday although Japanese markets will be closed.
The Australian dollar remains pressured following the Reserve Bank of Australia’s (RBA) dovish shift last week.
Here’s the scoreboard at 7.55am in Sydney on Monday.
AUD/USD 0.7088 , 0 , 0.00%
AUD/JPY 77.76 , 0.01 , 0.01%
AUD/CNH 4.8092 , 0.0012 , 0.02%
AUD/EUR 0.6260 , 0.0004 , 0.06%
AUD/GBP 0.5474 , 0.0001 , 0.02%
AUD/NZD 1.0509 , 0.001 , 0.10%
AUD/CAD 0.9409 , -0.0039 , -0.41%
After starting the week at .7250, the AUD/USD ended it at .7088, representing a decline of 2.2%. It was the largest weekly decline in percentage terms since early October last year.
The steep decline, leaving the AUD/USD briefly trading at the lowest level since early January, was largely driven by shift in mindset from the RBA with the bank delivering a raft of dovish commentary and forecasts in the latter parts of the week.
Financial markets now deem a rate cut by the end of the year as a certainty, contributing to renewed downside pressure on Australian government bond yields. The compression in yields has weighed on the Aussie dollar, more than offsetting continued strength in commodity prices and reduced levels of financial market volatility.
“The big question this week is whether the AUD/USD has enough depreciation forces on it to send it below the psychological level of 0.7000,” says Richard Grace, Chief Currency Strategist at the Commonwealth Bank.
“There has been a major change of forward guidance from the RBA, officially moving to a neutral bias. The RBA have revised down their real GDP and inflation forecasts, and noted downside risks to the economic outlook have increased, guided by the international and domestic economic data.
“With a 25 basis points rate cut more than fully priced by the twelve month OIS markets, we will need an additional catalyst for AUD/USD to close below 0.7000.”
Weakness in the euro, driven by a raft of weak economic data releases from the euro area, was another factor that weighed on the AUD/USD, seeing the US dollar index gain almost 1% for the week.
Turning to the day ahead, it will be a quiet one for traders with most major news and events set to arrive in the latter parts of the week.
There are no releases of note in Asia, although the resumption of trade in mainland Chinese markets following a week-long holiday could help set the tone for the Aussie in the second half of Asian trade.
In the past, the AUD/USD has often moved in lockstep with the USD/CNY on days when little data or news is around.
Japanese markets will also be closed for a public holiday, ensuring that market volumes will be well down on normal.
Later in the session, the main highlights will be the release of UK Q4 GDP, trade and industrial production figures along with Canadian trade and unit labour cost data from the United States.
US-Sino trade headlines may also be a factor today as negotiations between the two sides resume in China later in the week.
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