The Australian dollar is back at 80 US cents this morning, pushing higher in overnight trade on the back of renewed US dollar weakness and stronger commodity prices.
Here’s the scoreboard as at 7am AEST
AUD/USD 0.7995 , 0.0053 , 0.67%
AUD/JPY 87 , -0.14 , -0.16%
AUD/CNH 5.2275 , 0.0433 , 0.84%
AUD/EUR 0.6711 , 0.0035 , 0.52%
AUD/GBP 0.6133 , -0.0008 , -0.13%
AUD/NZD 1.1050 , -0.0036 , -0.32%
AUD/CAD 0.9891 , 0.003 , 0.30%
After pushing higher in Asia following the release of strong economic data from Australia and China, the AUD/USD rallied hard at the start of North American trade, surging to as high .8027 at one point, leaving it sitting at a five-week high.
The catalyst for the move was a speech from Lael Brainard, a permanent voting member on the US Federal Reserve FOMC, who cast doubt on the prospect for another rate hike this year given weakness in inflationary pressures.
“We should be cautious about tightening policy further until we are confident inflation is on track to achieve our target,” Brainard told an audience at the Economic Club of New York.
Neel Kashkari, Minneapolis Federal Reserve Bank president, also weighed in on the debate, suggesting that previous rate hikes delivered by the Fed may actually have done damage to the US economy.
“Maybe our rate hikes are actually doing real harm to the economy,” said Kashkari in a speech to the University of Minnesota’s business school.
“It’s very possible that our rate hikes over the past 18 months are leading to slower job growth, leaving more people on the sidelines, leading to lower wage growth, and leading to lower inflation and inflation expectations.”
Kashkari is a voting member of FOMC, and has dissented against both rate hikes from the Fed this year. He is also a noted policy dove.
Along with a soft US factory orders reading for July, the downbeat tone from Brainard and Kashkari saw US 10-year bond yields fall to 2.06%, the lowest level since November last year.
That weighed on the US dollar as a consequence, assisting the Aussie’s move higher.
Turning to Wednesday trade in Asia, the movements in the Aussie are likely to be dominated by the release of Australia’s June quarter GDP report at 11.30am AEST.
Economists are looking for a quarterly increase of 0.9%, leaving year-on-year growth at 1.9%. Those readings would be above the 0.3% and 1.7% growth rates reported in the March quarter.
Given that most economists are expecting a strong result, movements in the Aussie could well be driven by the strength of household consumption in the report, along with the factors that underpinned it. Was it driven by a reduction in savings or a pickup in employee pay?
Coming an hour after the GDP report, Alex Heath, head of economic analysis at the RBA, will speak in Tasmania.
Outside of Australia, there is very little in the way of market moving events until the North American session.
In the US, markets will receive the ISM’s non-manufacturing PMI report for August, international trade data for July along with weekly US crude inventory data from the API.
Canada will also release trade figures for July.
On the monetary policy front, the Bank of Canada will announce its September interest rate decision, a blockbuster event given markets are evenly split as to whether the bank will add to the rate hike delivered in mid-July.
The decision will be announced at midnight AEST.
The US Fed will also announce its Beige Book on economic conditions later in the session, with most interest likely to fall on the bank’s commentary on wage and inflationary pressures.