The Australian dollar pushed higher in overnight trade on Monday, boosted by strength in global stocks, another surge in commodity prices and a speech delivered by US Federal Reserve chair Janet Yellen which was widely seen as signalling that a near-term interest rate increase in the US was unlikely.
“A limited USD reaction to Yellen’s speech, higher commodity prices and a lift in US and European equity markets has guided AUD higher,” said Richard Grace, chief currency strategist at the CBA, in his Tuesday morning note.
“Yellen stated the US May jobs report was ‘disappointing’ in the context of the performance from last year, suggesting that it was, ‘on balance, concerning’.
“Although she admitted that one should ‘never attach too much significance to any single monthly report’, she suggested that there was ‘considerable uncertainty’ about the economic outlook,” Grace said.
In unison with a rebound in global stocks and surging commodity prices — particularly in crude oil and iron ore — it was enough to see the AUD/USD lift from lows of .7315 struck in Asian trade, eventually closing the session buying .7366.
Although around the same level that it opened the week, the close was the highest level seen since May 11.
In recent trade the AUD/USD is currently buying .7362.
Turning to Tuesday trade in Asia, the movements in the Aussie are likely to be dictated by one thing and one thing only: the outcome of the Reserve Bank of Australia’s June monetary policy meeting, in particular the wording of the final paragraph of the policy statement in which the bank will communicate its bias on the outlook for domestic interest rates.
Although most expect that the RBA will reinsert an explicit easing bias in the statement, indicating that a further reduction in interest rates is likely to occur in the period ahead, Grace believes the bank is likely to refrain on this occasion.
“AUD/USD should find some support following today’s RBA meeting,” says Grace.
“The RBA is unlikely to cut interest rates or signal a near-term rate cut.
“Hence, we believe the outcome is heavily tilted towards a modest rally in AUD/USD as the RBA acknowledges a stronger Australian economy, and really provides very little guidance,” he adds.
Although Grace describes such as an outcome as something that would provide a modest boost the Aussie, given markets remain fully priced for a further reduction in interest rates by early next year, a neutral bias from the RBA will likely send the Australian dollar soaring higher as markets scale back expectations for a further rate reduction, seen by most as likely to occur in August.
For those looking for further information before the RBA rate decision is announced at 2.30pm AEST, this 10-second guide will bring you up to speed.