The Australian dollar went nowhere overnight as weakness in the greenback was offset by risk aversion

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The Australian dollar went nowhere overnight as broad-based US dollar weakness was counteracted by a sharp deterioration in investor sentiment.

Here’s the scoreboard as at 7.40am AEDT:

  • AUD/USD 0.7546 , 0 , 0.00%
  • AUD/JPY 85.68 , -1.04 , -1.20%
  • AUD/CNH 5.1728 , -0.0029 , -0.06%
  • AUD/EUR 0.7054 , 0.001 , 0.14%
  • AUD/GBP 0.6045 , 0.0041 , 0.68%
  • AUD/NZD 1.0355 , -0.0009 , -0.09%

While the Aussie did little against the US dollar, it rose against the euro and British pound but fell against the safe-haven Japanese yen, reflective of investor caution seen during the session.

Although concern over the travel ban announced by US president Donald Trump was widely cited as the catalyst for the decline in US dollar, Richard Grace, chief currency strategist at the Commonwealth Bank, said that other factors may have also been at play.

“Potentially more damaging for the USD was news that the new President’s fiscal policy plans could be de-railed,” said Grace.

“First, Politico reported that Senate Democrats have laid-out their own competing (US$1 trillion) infrastructure spending proposal, and second, news from the last week’s annual Republican conference in Philadelphia was that tax reform was likely to be delayed with senior congressional aides suggesting spring 2018 as a more realistic timeframe.”

Grace says that if the Republican Party is unwilling to authorise Trump spending plans in coming months, markets are likely to lower their expectation of higher Fed interest rates and sell the US dollar.

That uncertainty, on top of the travel ban announcement from Trump and caution ahead of the US Federal Reserve FOMC monetary policy decision later this week, weighed on both US treasury yields and the US dollar during Monday’s session.

AUD/USD 5-Minute Chart.

Turning to the outlook for Tuesday trade in Asia, while there is a lot on the economic calendar, nothing aside from the Bank of Japan’s January monetary policy meeting stands out as a potential market mover for the Aussie.

In Australia, the ANZ-Roy Morgan weekly consumer confidence report will be released at 9.30am AEDT. That will be followed two hours later by the NAB’s Australian business confidence survey along with private sector credit figures from the RBA.

With many nations remaining closed for Lunar New Year celebrations, all of the major regional activity is centred around Japan with the release of industrial production, unemployment and household spending figures for December and the Bank of Japan’s latest monetary policy decision.

Rodrigo Catril, currency strategist at the National Australia Bank, says the BoJ is unlikely to adjust monetary policy on this occasion.

“While recent data releases suggest the Bank could upgrade Japan’s economic outlook, latest CPI data don’t justify an upgrade to its CPI forecasts,” he says.

“The Bank therefore still needs to keep its foot firmly on the easing pedal. So, today we expect the Bank to stand pat and to also remain firmly committed to its Yield Curve Control and other expansionary policies.”

Though few expect any change from the BoJ, the subsequent movements in the Japanese yen will likely prove influential on broader currency markets given its impact on the US dollar index during the Asian session. As a consequence, this may still generate modest levels of volatility in the Aussie, even if the BoJ remains on the sidelines.

While there is no set time for the BoJ announcement, it generally arrives around 1pm AEDT should policy settings remain unchanged.

Later in the session, markets will also inflation figures from Spain, France and the eurozone, unemployment data from Germany, Italy and the eurozone along with a speech from ECB president Mario Draghi.

That will be followed by data on employment costs, house prices, Chicago PMI and consumer confidence in the United States.

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