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Aussie Dollar May Turn on Shift in RBA vs Fed Outlook

Aussie Dollar May Turn on Shift in RBA vs Fed Outlook

2017-07-25 08:07:00
Ilya Spivak, Head Strategist, APAC
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Talking Points:

  • Aussie Dollar price action anchored to Australia-US yield spread
  • RBA's Lowe may offset impact of upbeat CPI data on policy bets
  • Status-quo FOMC, firm US GDP data may force outlook rethink

Retail traders are betting against AUD/USD. Find out here what that hints about coming moves!

Australian Dollar price action has become anchored to the yield spread between its local government bond yields and those of the US. Recent gains appear to reflect cooling Fed rate hike bets along with supportive Australian economic news-flow.

The week ahead speaks directly to this theme. First, second-quarter CPI data is expected to show an inflation uptick. This is to be followed shortly thereafter by a speech from RBA Governor Lowe.

Last week, Deputy Governor Debelle forcefully pushed back against speculation of a nearing hawkish pivot in RBA policy. The response seemed too bold to be uncoordinated, so Mr Lowe will probably register in kind.

A dovish speech from the central bank Governor immediately on the heels of the CPI report can swiftly cut off any Aussie gains triggered by a strong reading. If the data proves disappointing it can likewise amplify subsequent selling.

Just hours after all of that, the Federal Reserve will deliver a monetary policy announcement. No changes are expected but the accompanying statement will be parsed for support of the recent dovish shift in expectations.

Rhetoric par with the FOMC-defined status quo might sound hawkish relative to market consensus. If that is reinforced by second-quarter GDP figures echoing recent improvement in US news-flow, traders may rethink their Fed view.

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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