The Australian Dollar shakes off election jitters to rally to 0.7535 after gapping lower from 0.7450 at Monday early morning. Traders considered the risks of Australia’s AAA rating downgrade were exaggerated and brought AUD on dips. The appeal of AUD remains post Brexit as investors seek higher yielding assets.
Today, we have Australia’s May retail sales and trade balance (forecast 0.3% & -1.72bn respectively) to be released at 11.30am, then the Reserve Bank of Australia’s decision and statement on 2.30pm Sydney time. No changes is expected with bond futures pricing only 10% chance of cut. The RBA is likely to wait for next month for any changes as it assesses the implications of Brexit and receive Q2 CPI data on 27 July. The focus will be on the statement, whether explicit easing bias is implemented.
With key psychological resistance 0.75 broken overnight, demand for higher yielding currencies and RBA’s no expectation of cut, we expect AUD to be remain bid. Next key resistance is 0.7650.
Update post retail sales & trade balance:
AUD/USD has fallen back to 0.7500 after weaker than expected May Retail Sales at 0.2% m/m and May Trade Balance at -2.2bn.
Weak Asian equities are also weighing on the risk sensitive Australian Dollar with ASX down 50 points to 5240 and Japanese Nikkei down nearly 1% at the open after falls in European equities yesterday.
The AUD/USD has enjoyed gains in recent days as strong Gold and a weak USD have helped the pair onto the front foot ahead of the important RBA decision. The RBA is expected to hold with the chance of cut at just 8% but this has fallen from nearly 40% the day after the Brexit shock.
