The Australian dollar went into reverse overnight, giving back all of the gains achieved in the wake of yesterday’s strong Australian jobs report for May as the US dollar strengthened.
Here’s the scoreboard as at 7am AEST.
AUD/USD 0.7579 , -0.0006 , -0.08%
AUD/JPY 84.03 , 0.93 , 1.12%
AUD/CNH 5.1583 , 0.0115 , 0.22%
AUD/EUR 0.6798 , 0.0038 , 0.56%
AUD/GBP 0.5939 , -0.0009 , -0.15%
AUD/NZD 1.0512 , 0.0084 , 0.81%
Joseph Capurso, senior currency strategist at the Commonwealth Bank, said the US dollar strengthened — somewhat belatedly — in response to the hawkish commentary and economic projections offered by the US Federal Reserve following its June FOMC rate decision on Thursday.
“The USD firmed after the Fed meeting because the FOMC were surprisingly positive regarding anticipated inflation in 2018 and 2019,” he said in a note released on Friday morning.
“The FOMC also appears to be more constructive on the global outlook, dropping previous language signalling it was closely monitoring global economic and financial developments.”
That helped to lift US treasury yields, and with it the US dollar.
And, as seen in the four-hour AUD/USD chart below, that ensured that the Aussie gave back all of its earlier session gains over the course of European and North American trade.
The AUD/USD has now failed twice above .7630 in the past two sessions, suggesting that it’s latest rally may be running out of steam.
Turning to Friday’s session in Asia, all attention is likely to be on one thing and one thing only: the Bank of Japan’s (BoJ) June monetary policy decision.
While most don’t expect the BoJ to alter policy at this meeting, as Capurso from the CBA rightly points out, it has a solid track record for surprising markets recently.
“Market participants expect the BoJ to deliver no material policy announcements. We agree,” he says.
“However, the BoJ under current governor Kuroda has a reputation for surprising market participants.”
Capurso says that recent media reports suggest the BoJ could remove or change its annual target for purchasing Japanese government bonds — currently 80 trillion yen per annum — or outline an exit strategy from its monetary easing program, known as ‘QQE with yield curve control’.
“If either of these policy changes were to be announced this week, we would expect the yen to strengthen materially, if only temporarily,” he says.
There’s no set time for the release, but it tends to arrive after 1pm AEST. The general rule of thumb is that the longer it takes the BoJ to announce it’s decision, the more likely it is to have made changes.
Outside of that event, there is nothing on the Asian calendar that appears likely to shift the Aussie one way or another.
Continuing the theme from Asia, the economic calendar is relatively quiet in Europe and the US.
Markets will receive the final reading of Eurozone CPI for May while in the US housing starts and the latest University of Michigan consumer sentiment report will also be released.
On the policy front, EU finance ministers will meet in Brussels while Dallas Fed president Robert Kaplan, a FOMC voter in 2017, will also be in action.