The Australian dollar continued to slide in overnight trade, weighed down by persistent concerns surrounding next Thursday’s EU referendum vote in the UK and continues strength in US economic data, keeping the door ajar for a potential US rate increase as early as late July.
“Markets had more tell-tale signs of higher volatility as the day closed yesterday, with Brexit polls and fears dogging Sterling and equity markets on the defensive,” said David de Garis, senior economist at the NAB in his Wednesday morning note.
“Early in the London session the AUD was opened to a degree of selling, having traded in the high 73s/74 region in the morning, falling to 0.7330 before recovering as risk sentiment stabilised as the US session wore on.”
Alongside continued Brexit concerns, de Garis notes that US retail sales data for May also topped expectations, suggesting that a potential near-term rate hike from the US Federal Reserve remains a possibility.
“After strong April retail sales report (+1.3%), markets were expecting a further 0.3% in May, the result somewhat better at 0.5%. The so-called retail sales “control group” that feeds into consumption estimates in GDP, rose by a solid 0.4% (consensus was 0.3%) with April also revised up a tenth,” said de Garis.
“Following this report, the Atlanta Fed’s GDPNow estimate for Q2 was revised up to 2.8% from 2.5% from higher than expected consumption that was revised up to 3.9% from 3.5% before the retail sales report.
“All this points to signs of continued economic growth through the June quarter and keeps the July 28 FOMC in the frame for the Fed for a hike providing positive data prints continue, including a more growth-friendly June payrolls report as well as all the other event risk such as next week’s Brexit referendum.”
As a result the AUD/USD closed Tuesday’s session buying .7356, down 0.39% on Monday’s closing level.
In recent trade the AUD/USD has slipped further, currently trading at .7341 as at 7.45am AEST.
Looking ahead to Wednesday trade in Asia, de Garis notes that the economic calendar is devoid of major market moving events.
“Locally there is the weekly and monthly Australia consumer confidence/consumer sentiment reports that we expect to come and go with little to no market fanfare,” says de Garis. “That’s pretty much it for the Asia session as far as scheduled data reports is concerned.”
“China’s new yuan loans and aggregate financing reports for May remain due for release any day now,” he adds.
In the early hours of Thursday morning (AEST) the US Federal Reserve will also deliver its June monetary policy decision, an event that is likely to be heavily scrutinised by markets for any clues as to when the Fed may deliver another increase in interest rates.
The policy statement and updated Fed forecasts, including individual FOMC rate views known as simply as the “dots”, will be released at 4am AEST.
That will be followed by US FOMC chair Janet Yellen’s press conference 30 minutes later at 4.30am AEST.