Daily Commentary BY THE CURVE TEAM –

AUD Could Help or Hinder RBA

18th of June, 2019

It was a quiet start to the week ahead of key monetary policy updates which kick off today.

There wasn’t a lot of action over the past 24 hours. Markets generally moved in tight ranges with little in the way of data to drive the price action. That could continue to be the case for the early part of the week before key offshore monetary policy updates later in the week.

One overnight move was a continuation of the downtrend the AUD currently finds itself in. After rallying in the days leading up to the RBA’s June meeting and for a few days after, the AUD has since done an about face. The 6 day slide has seen it post its lowest close since early 2016 and is just over 1 cent away from breaking through that level.

Where the AUD goes from here will be of keen interest to the RBA. A lower AUD will help provide looser overall monetary policy condition and help to boost growth. It is one of the targets of its rate cuts along with lower borrowing rates for households.

However the near term direction of the AUD is likely to be driven by what happens offshore, in particular with the US Federal Reserve later this week. If the Fed cuts or flags the likely hood of a rate cut, in line with market expectations, we could see the USD come under pressure which would boost the AUD.

Alternatively if they remain firmly on the fence the AUD could come under pressure and put that 2016 low of 0.6741 in range. A break of that level would open up a big move lower over the medium term, something which would be warmly welcomed by the RBA.

Before we get to the US Federal Reserve on Thursday, we will get a few updated from our own central bank. Today the RBA will release the minutes from their June Board meeting. The market will be closely watching for any insights from the Board’s deliberations over lowering the cash rate for clues to where policy may be heading. However I expect we will learn more about the outlook when Governor Lowe speaks on Thursday, delivering a speech titled ‘Labour Market and Spare Capacity’.

David Flanagan

Director - Interest Rate Markets