The Australian dollar has regained its footing

Cameron Spencer/Getty Images

The Australian dollar rose fractionally on Monday, boosted by falling US bond yields which acted to weaken the US dollar.

Richard Grace, chief currency strategist at the Commonwealth Bank, put the decline in yields down to another subdued inflation reading arriving in the US overnight, casting some doubt on the prospect of a near-term interest rate hike from the Fed.

“USD eased lower in overnight trade, giving up some of its gains following the relatively hawkish Fed Jackson hole comments after US July PCE inflation rolled in with a flat reading in the month, taking the annual rate down from 0.9% to 0.8%,” said Grace.

“The decline in inflation lowered US ten-year and two-year bond yields 7bpts to 1.55% and 3bpts to 0.80% respectively, and pressured the USD lower.”

Grace also acknowledged that part of the move was “a correction from the strong reaction on Friday to the Fed’s Jackson hole comments”.

As a result, along with gains in US stocks that were fuelled by wafer-thin volumes, the AUD/USD closed finished the session buying .7567, having traded down to as low as .7525 in Asia. It was marginally above Friday’s closing level of .7563.

As at 7.40am AEST it currently buys .7571.

AUD/USD 5-Minute Chart

Turning to Tuesday trade in Asia, there is plethora of second-tier data releases scheduled, a polite way of saying that it’s unlikely to move the markets.

“Australian July building approvals and New Zealand July building permits won’t move the currency or rates markets today in a material way,” says Grace.

“We have a similar situation in the Eurozone and the US with second-tier economic data not likely to move the markets (Eurozone August economic confidence and U.S. July house prices)”.

That will change later in the week with the new month heralding a fresh batch of first-tier data, culminating on Friday with the release of US non-farm payrolls for August, a report that promises to be influential on markets, including the Aussie dollar.

Here’s the current scoreboard as at 7.40am AEST.

  • AUD/USD 0.7571 , 0.0004 , 0.05%
  • AUD/JPY 77.13 , 0.02 , 0.03%
  • AUD/CNH 5.0633 , 0.0017 , 0.03%
  • AUD/EUR 0.6768 , 0.0006 , 0.09%
  • AUD/GBP 0.5776 , 0.0001 , 0.02%
  • AUD/NZD 1.0433 , 0.0006 , 0.06%

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