Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
Aussie clears recent highs before RBA
The Australian dollar led markets higher on Monday ahead of today’s key decision from the Reserve Bank of Australia.
The AUD/USD gained 0.4% to end at the highest level since 27 December with the pair less than 50 pips away from one-year highs.
Global markets were also mostly higher on Monday as the positive impact continued from last week’s 50bps rate cut from the Federal Reserve.
The US’s S&P 500 gained 0.3% while the Nasdaq climbed 0.2% despite a weaker reading from the US’s manufacturing PMI numbers. The US’s services PMI also slipped lower.
In other markets, the NZD/USD also gained 0.4%, the USD/SGD was up 0.1% while the USD/CNH climbed 0.3%.
RBA due amid global shifts
At its September decision, due at 2.30pm AEST, we believe the RBA will once more decide to maintain its policy rate at 4.35%. Recent communications from the RBA have been comparatively hawkish, suggesting that it has given the argument for a rate hike careful thought.
This supports its beliefs that the labor market is still tight and that it will probably take some time for inflation to return to its target range.
We are keeping a careful eye on whether any of this pessimistic tone softens, especially in light of the ongoing lackluster data from China and declining commodity prices.
The Fed’s decision to cut rates by 50 basis points is not expected to materially alter RBA policy.
Euro weaker after PMI misses
The euro was the clear underperformer overnight after big misses in the European PMI numbers, with the drop in French services and German manufacturing most notable.
Given the deterioration in the most recent Sentix and ZEW surveys, we anticipate a decline in the German IFO survey in September.
As a result, we predict that the business climate index will decrease from 86.6 in August to 86. In the specifics, we anticipate that the expectations subcomponent will likely tack on a point or two, falling to 86.5 from 86.8. The present conditions subcomponent is predicted to drop by 1 point to 85.5.
The weaker euro saw the AUD/EUR climb to two-month highs while the EUR/SGD fell to the lowest level in 18 months.
Aussie nears one-year highs as RBA looms
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 23 – 28 September
All times AEST
*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
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