The Australian dollar is in a holding pattern as markets await major risk events ahead

Scott Olson/Getty Images

The Australian dollar continued to oscillate around the 77 cent region in overnight trade, mirroring the caution expressed in stocks and commodities before a swathe of important data releases and central bank policy decisions from the US, Japan and New Zealand later in the week.

At 8am AEST, the AUD/USD was buying .7713, up slightly on Friday’s closing level of .7703.

AUD/USD 1-Hour Chart

Having fallen from a high of .7835 struck on Thursday last week, Richard Grace, chief currency strategist at the CBA, believes the Aussie could weaken further in the week ahead.

“Over a medium-term perspective, we think the upward trend in AUD/USD remains intact,” says Grace. “But following the recent rally, on a shorter term tactical basis, we think AUD can ease back further this week. AUD/USD is at risk of declining because of a stronger USD and the risk the underlying Australian CPI measures disappoint expectations.”

According to a poll of economists conducted by Bloomberg, Australian core CPI is expected to have risen 0.5% in the first three months of the year, leaving the year-on-year increase at 1.95%, fractionally below the 2-3% medium term band targeted by the RBA.

“Given the weakness in Australian wages growth, low business inflation expectations, and rebound in the AUD, there are downside risks to our underlying CPI view,” notes Grace. “A weaker CPI report would see market pricing for additional RBA easing return, modestly weighing on AUD/USD.”

Outside of the Q1 Australian CPI release, Grace suggests the prospects for a rebound in the US dollar are also growing.

“We think the rebound in the USD can continue this week,” he says. “We think the FOMC should dilute its concerns about the risks to the US economy from ‘global economic and financial developments’.”

This may see participants price in more chance of a Fed rate hike over coming meetings (currently the Fed funds futures curve is pricing in only a 40% chance of a 25bp rate hike by September 2016), supporting the USD.

While those events will arrive in the sessions ahead, along with key monetary policy decisions from the Bank of Japan and Reserve Bank of New Zealand on Thursday, the economic calendar in Asia on Tuesday is littered with second-tier releases which are unlikely to move the Aussie one way or the other.

This suggests movements in Chinese markets — be it stocks, commodity futures or the yuan — will likely be influential on short-term movements in the Aussie today.

Here’s the current Australian dollar scoreboard.

  • AUD/USD 0.7713 , -0.0001 , -0.01%
  • AUD/JPY 85.77 , 0.00 , 0.00%
  • AUD/CNH 5.0160 , -0.0049 , -0.10%
  • AUD/EUR 0.6845 , 0 , 0.00%
  • AUD/GBP 0.5325 , -0.0001 , -0.02%
  • AUD/NZD 1.1245 , -0.0005 , -0.04%

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at research.businessinsider.com.au.