Australian Dollar Decline Pushes it to Bottom of the Range. Will AUD/USD Bounce?

Australian Dollar, AUD/USD, US Dollar, Treasuries, ACGB, RBA, Wages, Jobs – Talking Points

• The Australian Dollar is threatening to make new lows today
• Treasury yields have been supportive of the US Dollar
• AUD is trading at the foot of the range. Will AUD/USD find support?

The Australian Dollar is struggling to bounce off the lows seen last week with US Dollar ascendency continuing into Monday’s trade, impacting risk assets and commodities.

Treasury yields appeared to underpin the USD as they resumed their march higher with the benchmark 2-year note eclipsing 4.91% on Friday, after visiting 4.72% during the week.

The 10-year bond is scoping a move above 4.20% after trading at 3.96% last week.

At the same time, Australian Commonwealth Government bonds (ACGB) also ticked up in yield to keep the yield spread fairly steady.

AUD/USD AGAINST AU-US 2 AND 10-YEAR YIELD SPREADS

Chart created in TradingView

The stronger US Dollar has unsettled commodity markets with metals in particular seeing some recent weakness. For a further look at this aspect of the Aussie Dollar weakness, visit the article from our weekend publication here.

For the week ahead, tomorrow will bring the Reserve Bank of Australia’s monetary policy meeting minutes along with the wage price index and ahead jobs data on Thursday.

The meeting minutes rarely bring any surprises from the Statement on Monetary Policy that is released on the day that the board gathers. There are more details in the minutes and that can sometimes give a hint of the potential nuances in the board’s thinking.

Last Friday, RBA Governor Philip Lowe spoke at the House of Representatives Standing Committee on Economics on Friday. On inflation, he noted again that energy and the cost of building a home were the main factors bringing inflation down while rents and services are continuing to add to price pressures.

The wage price index is forecast to remain steady at 3.7% year-on-year to the end of the second quarter. This gauge is attracting more attention than usual after several award-based wages have been granted 5% to 8% increases in the last few months.

A Bloomberg survey of economists estimates that the unemployment rate will be 3.6%, close to 50-year lows. The tight labour market has previously been cited several times by the RBA as a hurdle to getting inflation under control.

Although these domestic factors may have some sway over AUD/USD, US Dollar movements might remain the dominating factor.

Source; DailyFX Calendar

— Written by Daniel McCarthy, Strategist for DailyFX.com

Please contact Daniel via @DanMcCarthyFX on Twitter