Sean Callow, analyst at Westpac, notes that AUD was a little choppy on the release of the RBA statement, falling from 0.6975 to 0.6957 then back to 0.6985.
Key Quotes
“The Aussie seemed to be torn between delivery of a rate cut that was not fully priced for this meeting and the statement wording which suggested no urgency to cut again, in contrast to money markets pre-meeting pricing risks of lower rates as soon as August. The language on A$ was barely changed: “The Australian dollar is at the low end of its narrow range of recent times.”
“Note that in CME futures, the combined real money and leveraged fund AUD/USD position last week was -57k contracts, trimmed a little since late May but still historically large. So there is plenty of fuel for short-covering.”
“This year we have seen AUD/USD correlating far more reliably with yield differentials than with commodity prices, where iron ore continues to squeeze higher but coal and copper are struggling. This sensitivity to the monetary policy outlook suggests that while AUD/USD could get some further support from an upbeat Lowe speech, rallies will be capped if Fed officials and/or US data provide further cause to trim pricing for FOMC easing. In particular, we see no good reason why Fed fund futures should still be pricing a 20% risk of -50bp on 31 July.”
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