It’s going to be a big session for Aussie dollar traders

Photo: Eric Piermont/ AFP/ Getty Images.

The Australian dollar came under pressure in overnight trade, succumbing to a fresh bout of US dollar strength.

But the move came on the back of weak volumes due to the upcoming Independence Day holiday in the US, creating doubts as to whether the move will last.

Here’s the scoreboard as at 7.45am AEST.

AUD/USD 0.7653 , -0.0007 , -0.09%
AUD/JPY 86.75 , -0.08 , -0.09%
AUD/CNH 5.1993 , -0.0058 , -0.11%
AUD/EUR 0.6734 , -0.0005 , -0.07%
AUD/GBP 0.5914 , -0.0007 , -0.12%
AUD/NZD 1.0491 , -0.0008 , -0.08%

Imre Speizer, market strategist at Westpac, said the latest bout of US dollar buying coincided with strong US economic data and cautious remarks on the outlook for monetary policy from a leading ECB official.

“US manufacturing activity (ISM) surged from 54.9 to 57.8,” he said. “That is a three-year high, and together with a construction update, caused the Atlanta Fed to revise its model-based prediction on Q2 GDP from 2.7% to 3.0%.”

That saw 10-year US treasury yields rise to 2.35%, a two-month high, helping to lift the US dollar as a consequence.

The US dollar also got a boost from cautious central bank chatter in Europe, something that ultimately helped to undermine the euro.

“EUR/USD fell from 1.1415 to 1.1355, partly due to anonymous ECB officials plus Jens Weidmann and Yves Mersch downplaying the proximity of a normalisation signal,” said Speizer.

“ECB board member Mersch said easy policy has helped the economy but it is not yet self-sustaining.

“Weidmann said an expansive policy is still needed, but that if economic improvements pass through to higher inflation then they could ‘lift the foot off the gas a little’.”

That all helped the US dollar to rebound after tumbling to a fresh multi-month low on Friday, and contributed to the weakness in the Aussie seen on Monday.

AUD/USD Hourly Chart

However, with the US markets closed today, whether the move can be sustained will likely be determined by the release of Australia’s May retail sales report at 11.30am AEST along with the Reserve Bank of Australia’s (RBA) July monetary policy meeting.

On the retail front, markets are expecting an increase of 0.2% following an outsized 1% gain in April that was assisted by seasonality effects surrounding Easter and an improvement in weather conditions in Cyclone-hit Queensland.

As for the RBA rate decision, all interest will be on the bank’s monetary policy statement, particularly given the hawkish shift seen from many major central bank’s worldwide in recent weeks.

“We expect some positive tweaks to assessments of the labour market, but overall no substantive changes given conditions are still evolving in the housing market,” Speizer says.

For those looking for further information ahead of the event, this 10-second guide will help bring you up to speed.

Outside of Australia the data calendar is quiet, likely ensuring that sentiment and short-term market positioning will dictate movements later in the session in the absence of North American traders.