The Australian dollar endured a topsy-turvy session on Tuesday, sliding lower in Asia and Europe only to recover almost all of the losses in the latter parts of trade.
Here’s the Australian dollar scoreboard as at 7.40am AEDT:
- AUD/USD 0.7679 , -0.0007 , -0.09%
- AUD/JPY 87.23 , 0.32 , 0.37%
- AUD/CNH 5.2671 , -0.0024 , -0.05%
- AUD/EUR 0.7280 , 0.0041 , 0.57%
- AUD/GBP 0.6154 , -0.0014 , -0.23%
- AUD/NZD 1.0714 , 0.0029 , 0.27%
The gyrations in the Aussie were largely driven by movements in the US dollar.
US bond yields initially lifted, helping to bolster the US dollar, following continued speculation that the US Federal Reserve could hike interest rates again as soon as March.
However, those moves were largely unwound in the second half of the session, something that coincided with the release of US services and manufacturing PMI reports for February that undershot expectations.
As a result, the AUD/USD is almost back to where it began the session. It also made solid ground against the Japanese yen and euro, reflective of the risk-on mood across broader financial markets overnight.
Turning to Wednesday trade in Asia, it’s a busy Australian economic calendar with a speech from RBA governor Philip Lowe and reports on construction and wage growth for the December quarter.
Lowe will address the Australia-Canada Economic Leadership Forum in Sydney from 8.30am AEDT. While we’ve heard a lot from the RBA over the past two weeks, there’ll be a Q&A session at the end of his speech, a scenario that could generate some volatility in the Aussie.
That event will be followed three hours later by the release of construction work done and wage data for the December quarter.
“The construction numbers will take on greater than usual importance given they will help reveal the extent to which Q4 GDP is expected to bounce back after September’s weather-affected read,” says Tapas Strickland, an economist at the National Australia Bank.
Market consensus is centred around a quarterly increase of 0.5%, with renewed strength in residential construction seen offsetting ongoing decline in mining-related activity.
As for the wage price index, a quarterly increase of 0.5% is expected. Wages previously grew by just 0.4% in the September quarter, the lowest level on record.
The RBA is expecting household income and wages to pickup modestly in the years ahead, helping to lift consumption and inflationary pressures as a consequence. Should the index undershoot expectations once again, it will create some doubt about those forecasts.
While the construction and wage reports haven’t proven to be major market moving releases in the past, combined, they carry the potential to shift interest rate expectations, particularly should both print stronger or weaker than expected.
Outside of Australia, Chinese new home prices for January will be released at 12.30pm AEDT. This report could create volatility in Chinese commodity futures, hence may prove influential on the Aussie.
Later in the session, the minutes of the Fed’s February FOMC meeting will be also be released at 6am AEDT.
“The focus will be on whether anything can be gleaned on the possibility of a March rate hike, currently 41% priced according to the OIS market,” says Strickland.
UK Q4 GDP, German business confidence and eurozone CPI are the other major economic highlights.