Undermined by a commentary from RBA governor Glenn Stevens on Tuesday that did nothing to discourage market expectations that a further rate cut from the RBA is likely, along with further strength in US economic data, the Australian dollar sunk in overnight trade.
After hitting a low of .7145 against the US dollar, the Aussie eventually finished Tuesday trade buying .7182, its lowest closing level since March 1.
The recovery off the lows was helped by renewed strength in global crude oil prices along with buoyant performances from US and European equities, factors that are likely to provide some support in Asia on Wednesday.
The AUD traded to a low of 0.7145 early in the overnight session, and then it staged a small recovery to be currently trading at 0.7182. However most of the damage had been done earlier following comments from RBA governor Stevens at a briefing in Sydney yesterday afternoon,” said Rodrigo Catril, currency strategist at the NAB.
“Although Governor Stevens did not make any attempt to jawbone the currency, noting that the currency was ‘doing what you’d expect it to do at the moment’, it seems that the FX market treated the governor’s comments on inflation that it is ‘probably a little bit too low at the moment’ as an opportunity to sell the currency.”
It was also interesting that the governor made no attempt to alter market thinking that a further rate cut was likely, an outcome that was interpreted by some as another factor behind the Aussie’s decline.
Turning to Wednesday’s trading session in Asia, there are a series of second-tier releases scheduled domestically, although none are likely to generate significant volatility in the Aussie.
“This morning in Australia we get skill vacancies and construction work done for Q1. The later kicks off the start of GDP partial prints ahead of the March GDP number due for release on June 1st,” wrote Catril.
“Our economists note that for some quarters now, the construction work done release has been a “triple trend” composite indicator: rising dwelling investment, flat non-residential building investment, and declining engineering construction.
“This trend is expected to be repeated in the March quarter with a composite 1.25% decline in overall work done — similar to the market consensus of -1.5% q/q.”
The report will be released at 11.30am AEST.
Outside of Australia, markets will also receive New Zealand trade figures for April along with the final release of Q1 Singapore GDP. Neither are likely to be influential on markets.