The Australian dollar has opened the new trading week at the lowest level seen since early March, weighed down by hawkish remarks from US Federal Reserve chair Janet Yellen on Friday evening suggesting a rate increase in the months ahead “would probably be appropriate”.
USD lifted in New York on Friday after Yellen said “it’s appropriate… for the Fed to gradually and cautiously increase our overnight interest rate over time, and probably in the coming months such a move would be appropriate’ in a speech made at Harvard’s Radcliffe Day”.
In his Monday morning note Richard Grace, chief currency strategist at the CBA, said: “Markets currently have a 70% chance of a July rate hike priced.”
He noted that probability had increased from 51% prior to Yellen’s speech.
The lift in rate hike expectations saw the US dollar firm across the board, pushing the Aussie back below the 72 cent level, an area it continues to sit in early trade in Asia this morning.
At 8am AEST, the AUD/USD bought .7178, down 0.7% on Friday’s opening level.
In his view, Grace suggests the US dollar will “continue trending higher into the July FOMC meeting”, something that may heap further pressure on the Aussie as a consequence.
Looking ahead to Monday’s trading session in Asia, there is a raft of second-tier data scheduled for release both at home and abroad, including Australian GDP inputs, although none is likely to be market moving.
In Australia, Q1 business inventories and company profits data will be released at 11.30am AEST, just after HIA new home sales data for April at 11am AEST.
Regionally, Japanese retail sales figures for April will also be released at 9.50am AEST.
It is also noteworthy that UK and US markets will be closed for public holidays on Monday, suggesting that market liquidity, and perhaps overall interest, will be limited.