Sean Callow, Research Analyst at Westpac, points out that last week AUD/USD fell to its lowest point since January 2017, around 0.7325 and much of this was simply due to the strength of the greenback, but there was also some pressure from the slide in the Chinese yuan.
Key Quotes
“Since 12 June, the eve of the FOMC decision, almost all major currencies are down against the US dollar. Within Asia, it is very notable that the yuan is equal-weakest (with KRW), -3.4%, given China’s previous preference for appreciation.”
“Whatever the motives behind the yuan’s fall, it has added weight to AUD/USD. A quiet local calendar kept the Aussie focused on offshore developments such as trade tensions and some softness in commodity prices.”
“In the week ahead, the RBA seems certain to keep its cash rate at 1.5% but there will be interest in the statement, on factors including the pressure on mortgage rates from the rise in banks’ funding costs. In terms of Australian data, we will see May updates on retail sales, building approvals and the trade balance. Of these, retail sales is probably most market-sensitive, with the RBA somewhat concerned over consumer spending.”
“Internationally, we will keep watching US-China trade tensions and the fallout from the European Union summit which has not resolved tensions within German chancellor Merkel’s coalition (though Friday’s EUR bounce did help AUD as well).”
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