AUD – Australian dollar
The Australian dollar underperformed through trade on Monday giving up early morning highs near US$0.68 and sliding back toward session lows marginally above US$0.67. Domestic GDP markers cast a pall over the local session dampening analysts’ expectations for today’s Q2 GDP print. The current account contracted sharply led by declines in key commodities as iron ore prices continue to languish below $100 a tonne. The iron ore price collapsed this year, down by 32% amid persistent concerns about the Chinese property market and a depressed demand for steel. As markets prepare for a Fed rate cut, softness across iron and copper continues to act as a headwind buffeting AUD upside. Having slipped below US$0.6750 the AUD continued to track lower overnight amid elevated risk aversion. Global equities came under pressure and US treasury yields edged higher following a marginally stronger than anticipated US ISM manufacturing print. The AUD opens this morning buying US$0.6708.
Our attention turns to Q2 GDP numbers. We expect quarterly growth to be a miserly 0.2% Q/Q prompting a further slowdown in the annual pace of growth and a dip toward 0.9%. However, if we remove the impacts of migration the Australian economy remains mired in a recession equal to that of the early 90’s. That said today’s print will have little impact on RBA projections and given the softness has been well forecast we expect it to have a marginal effect on AUD performance. Offshore the Bank of Canada is expected to cut rates while US jobless claims will prove key in shaping expectations ahead of Friday’s all-important non-farm payroll print.
Key Movers
A definitive risk-off tone enveloped markets on Tuesday, benefiting the defensive currencies and bolstering demand for the USD, CHF and yen. The yen however was the day’s best performer advancing 1% against the USD after Bank of Japan Governor Ueda submitted plans to a government panel outlining the need for further rate hikes should the economy and prices continue to perform in line with the bank’s projections. The report served as a timely reminder of the risks connected to a further carry trade unwinding and prompted an uptick in risk aversion through the Asian session that eked into overnight trade. With risk off and global equities lower the euro and GBP gave up a quarter percent while commodity currencies were the day’s big underperformers.
Our attention now turns to the Bank of Canada policy meeting where we expect they another 25-point rate cut while China Caixin services data and US jobs data dominate the offshore ticket.
Expected Ranges
AUD/USD: 0.6620 – 0.6820 ▼
AUD/EUR: 0.6050 – 0.6150 ▼
GBP/AUD: 1.9300 – 1.9700 ▲
AUD/NZD: 1.0820 – 1.0920 ▼
AUD/CAD: 0.9050 – 0.9150 ▼