- The Australian dollar rose on Tuesday as weak Australian economic data was offset by continued optimism from the RBA.
- RBA Governor Philip Lowe will deliver a speech entitled “The Year Ahead” from 12.30pm AEDT.
- US President Donald Trump will deliver his State of the Union address from 1pm AEDT.
- Other than those events, the economic data calendar is quiet. Much of Asia will be on holidays for Lunar New Year celebrations.
The Australian dollar endured a choppy session on Tuesday, falling, then rising, before giving back ground towards the close.
Here’s the scoreboard at 8.15am in Sydney on Wednesday.
AUD/USD 0.7234 , 0.001 , 0.14%
AUD/JPY 79.53 , 0.15 , 0.19%
AUD/CNH 4.8924 , -0.0035 , -0.07%
AUD/EUR 0.6340 , 0.0026 , 0.41%
AUD/GBP 0.5585 , 0.0045 , 0.81%
AUD/NZD 1.0492 , 0.0003 , 0.03%
AUD/CAD 0.9502 , 0.0029 , 0.31%
After opening trade at .7224, the AUD/USD weakened in Asian trade, undermined by a string of weak Australian economic data releases.
Retail sales slumped in December while activity across the services sector deteriorated at the sharpest pace in four years in January. New car sales also fell heavily in January compared to the levels of a year earlier.
That news sent the AUD/USD tumble to .7194, a one-week low.
However, that weakness was reversed late in the Asian session as an upbeat RBA monetary policy statement saw expectations for a further cut in the cash rate diminish slightly, helping the AUD/USD climb to as high as .7264.
After clinging onto those gains in early European trade, the AUD/USD began to edge lower as US markets opened, a move largely reflecting US dollar strength rather than Aussie dollar weakness.
The strength in the greenback came despite news that US service sector activity improved at the slowest pace in six months in January, possibly influenced by the temporary US government shutdown.
The news saw US bond yields pullback but that was largely overlooked by traders.
While the Aussie’s gains against the greenback were limited, it put in a stronger performance against the crosses, logging strong gains against the British pound and euro, in particular.
Weak UK economic data, adding to growing nerves over the health of the economy as the Brexit deadline nears, was the chief catalyst behind the pound’s weakness.
“The UK services sector was the focus overnight with the January Services PMI printing much weaker-than-expected at 50.1 against 51 expected and 51.2 previous,” said Rodrigo Catril, Senior FX Strategist at the National Australia Bank.
“New Business volumes declined for the first time in two and a half years in January.”
Catril said the decline in pound dragged other European currencies lower, including the euro.
Turning to the day ahead, two speeches on either side of the world will likely determine how the Aussie will fare.
The first comes from RBA Governor Philip Lowe who will speak on the “The Year Ahead” in Sydney from 12.30pm AEDT.
“If the line ‘the next move in interest rate is more likely to be up rather than down’ is not included in Lowe’s speech, it would implicitly signal a cut to the cash rate is as likely as a hike,” says Richard Grace, Chief Currency Strategist at the Commonwealth Bank.
“This would weigh on AUD and Australian swap rates. Based on the overall positive RBA statement tone [seen on Tuesday], we expect Lowe’s speech to retain the line.”
Just as Lowe will be getting ready to tuck into his lunch, attention will then switch to US President Donald Trump’s delayed State of the Union Address in Washington from 1pm AEDT.
“Expectations are for the President to make comments on North Korea, the US economy, China trade talks and border security,” says Cartil at the NAB.
“The latter of course is the main focus for markets given that Trump has hinted at the possibility of declaring a national emergency in order to fund his much desired wall along the Mexican border.
“The political ramifications from such an announcement — setting a precedent of governing through presidential decree — could rattle markets as it would further deteriorate an already tense relationship with a Democrat-led Congress.”
Outside of speaking arrangements from policymakers, the economic data calendar is quiet today.
German factory orders and US trade figures are the headline acts. The Reserve Bank of India will also announce its February monetary policy decision. No change is expected.
Chinese, Hong Kong, South Korean and Singaporean markets will be closed for Lunar New Year celebrations.
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