Australian dollar extends retreat ahead of RBA minutes

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This was published 6 years ago

Australian dollar extends retreat ahead of RBA minutes

By Timothy Moore
Updated

The Australian dollar slid further from the US80¢ mark overnight, extending its retreat in the past two weeks to 1.8 per cent, amid a resurgent greenback and disappointing Chinese economic data, and the downward momentum appears intact for now.

The greenback rebounded after William Dudley, the influential head of the regional Federal Reserve bank in New York, said he would support a third US interest rate hike this year if the economy continued to improve as he expected, in particular his expectation of a faster pace of inflation.

The US dollar had swooned in recent weeks and its major counterparts had advanced, including the Aussie, as bets on the pace of US rate rises fell, signalling a steadier gap between US and overseas rates.

"Positioning suggests this (upward US dollar) momentum can continue," ANZ Research editor Tom Kenny wrote of the overnight currency market sentiment switch.

The Aussie, which topped US80¢ on July 26, slid as low as US78.45¢ overnight.

The Aussie, which topped US80¢ on July 26, slid as low as US78.45¢ overnight.Credit: Virginia Star

The Aussie, which topped US80¢ on July 26, slid as low as US78.45¢ overnight and recently was trading at US78.51¢.

The local currency could extend its decline if today's release of the minutes from this month's policy meeting at the Reserve Bank of Australia ramps concern about the currency's recent strength on the economic outlook.

With positioning mega long and most fundamental valuations suggesting the Aussie dollar is fully priced, it won't take much for the Aussie to trade down and through last week's lows to US78¢ - may be lower over the next week," said Greg McKenna, chief market strategist at CFD and FX provider AxiTrader.

That makes the minutes from the last RBA board meeting even more important for the Australian dollar than usual, Mr McKenna noted.

The dollar index, which tracks the greenback against six major currencies, was last up 0.4 per cent. The index fell to its lowest since May 2016 earlier this month.

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The Australian dollar is in retreat.

The Australian dollar is in retreat.Credit: AFR

Last week the US dollar fell to an eight-week low against the Japanese yen. Overnight it rose 0.5 per cent to 109.67 yen. Against the Swiss franc, the greenback was up 1.1 per cent, on pace for its largest one-day percentage gain in nearly three weeks.

Both the yen and the Swiss franc surged last week as the war of words between the US and North Korea jolted markets.

Payson Swaffield, chief income investment officer at Eaton Vance, said investors should be cautious of where US rates are heading.

"The Fed sees its key short-term standing at about 3 per cent by the end of 2019," Mr Swaffield said. "Overall, the Fed is broadcasting one more hike this year, three more in 2018, and three in 2019. The market isn't buying it."

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Key to the greenback's short-term outlook will be this week's July retail sales print. TD Securities looks for headline retail sales to advance by 0.4 per cent month over month, in line with the consensus.

"A small change in the consumer behaviour which will be reflected in the retail sales number and that would provide support for the dollar bulls," said ThinkMarkets Naeem Aslam.

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