Sean Callow, analyst at Westpac, points out that AUD is finally showing some vulnerability after its resilience in the face of poor domestic data, the RBA rate cut (and promise of more) plus global equity sentiment buffeted by US trade policy and is the softest G10 currency over the week.
“The headwinds seem likely to continue near term, especially from the RBA outlook. Market pricing for RBA easing is already aggressive but could fall further yet if Governor Lowe’s speech indicates that the RBA will keep leaning to lower rates until the jobless rate is nearer 4.5%.”
“Limiting A$ downside somewhat against the US dollar at least is the potential for a dovish FOMC to chip away at US yields. And Australia’s iron ore export revenues at least will be holding strong as spot returns to >$100/tonne.”
“But the combination of the RBA and unpromising signs on the US-China trade front leave us with a negative bias on the week and month. Near term risks to re-test and perhaps break the May lows around AUD/USD 0.6865.”