Breaking News
Investing Pro 0
NEW! Get Actionable Insights with InvestingPro+ Try 7 Days Free

Will RBA Spoil AUD’s Rally?

By Kathy LienForexJun 05, 2017 16:40
ca.investing.com/analysis/will-rba-spoil-aud%EF%BF%BD%EF%BF%BD%EF%BF%BDs-rally-200193161
Will RBA Spoil AUD’s Rally?
By Kathy Lien   |  Jun 05, 2017 16:40
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
 
EUR/USD
-1.48%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
GBP/USD
-3.54%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
USD/JPY
+0.69%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
AUD/USD
-1.76%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
USD/CAD
+0.77%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
NZD/USD
-1.81%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

By Kathy Lien, Managing Director of FX Strategy for BK Asset Management.

With hours to go before the Reserve Bank of Australia’s monetary policy announcement, the Australian dollar extended its gains for a second day in a row to 0.7498, just 2 pips shy of the key 75 cent level. Monday’s gains had little to do with data as Australia's service-sector activity and inflation growth slowed. Job ads also grew by only 0.4%, down from 1.5% the previous month. These reports should make the Reserve Bank less optimistic but on a day like Monday when geopolitical events drove Aussie flows, that mattered little to FX traders. The decision by Gulf States to cut ties with Qatar sent AUD sharply higher. While Qatar is not a major oil producer, it is a major producer of liquefied natural gas. Australia is quickly becoming a major player in this market and should be a big beneficiary of Qatar’s diplomatic crisis. Saudi Arabia closed its borders and suspended air and sea travel between the 2 countries. In the long run, these developments will have a positive impact on Australia’s economy, but in the near term it may not be enough to please the RBA.

As seen in the table below, there’s been more deterioration than improvement in the economy since the last monetary policy meeting. Over the past month, labor-market conditions and inflation weakened as manufacturing and trade conditions deteriorated due to the slower Chinese export growth. Stocks, bonds and commodity prices also fell. There was some good news including Monday’s uptick in China's service-sector activity but that was offset by weakness in manufacturing. Australia’s housing market also saw gains but we don’t think that will be enough to squeeze some optimism from the RBA. Let's not forget that when the RBA last met, it was under the backdrop of stronger data and rather than recognize these improvements, it said its forecast for Australia’s economy has not changed much, sending the Australian dollar spiraling lower. So if the RBA doesn’t present some type of optimism, it will spoil AUD's rally. But if it says even one positive word, we could see AUD/USD hit 0.7550.

AUD Data Points
AUD Data Points

Although the Canadian and New Zealand dollars ended the day unchanged, they spent most of the North American trading session drifting toward higher levels. Oil declined but ended the day off its lows. No data was released from either country but on Tuesday, New Zealand has a dairy auction and Canada releases its IVEY PMI report, so we should see more volatility in both currencies.

US Dollar (JPY) failed to extend its losses despite mostly softer U.S. data. The non-manufacturing ISM index dropped to 56.9 from 57.5 as factory orders and durable goods declined. After the miss in Nonfarm Payrolls, slower service-sector growth did not catch anyone by surprise, which may explain why U.S. yields moved higher on Monday. Even with the rebound, rates are down from Thursday’s pre-NFP levels. There’s not much in the way of U.S. data this week but we believe it's only a matter of time before 110 is tested.

Euro and sterling moved in opposite directions Monday with the former slipping against the dollar and the latter rising. Interestingly enough, Eurozone PMIs were revised higher while U.K. Construction PMI declined.
Investors are worried that after the euro's strong rise, the currency will pullback ahead of the European Central Bank’s monetary policy decision. Members of the ECB have taken every opportunity to emphasize the need for accommodation and while the political threat has faded, euro's recent strength may deter President Draghi from emphasizing the improvements in the economy. With that in mind, the ECB could upgrade its economic forecasts, which puts it a step closer to tapering asset purchases. Sterling on the other hand traded higher as polls show a small improvement in the Torie's lead over Labour. It seems that the latest terrorist attacks did not make Britons more skeptical of Prime Minister May’s abilities. In the lead up to Thursday’s election, sterling traders will continue to key off polls.

Will RBA Spoil AUD’s Rally?
 

Related Articles

Kenny Fisher
EUR/USD Near Parity, Powell Speech Next By Kenny Fisher - Aug 25, 2022

The euro has posted gains today and briefly punched above the symbolic parity line. In the North American session, EUR/USD is trading at 0.9978, up 0.11%.German Business Confidence...

Shahriar Motevaselolhagh
EUR/USD This Week By Shahriar Motevaselolhagh - May 22, 2022

EURUSD has been bearish for 50 weeks but there are some concerns now. There is a bearish Engulfing pattern in weekly DXY which is below the resistance line so we may see a little...

Will RBA Spoil AUD’s Rally?

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email