China to Cut Rates, But Will Aussie Lift?

AUD

The Aussie dollar opens ever-so-slightly up against majors this morning as risk remains off globally & commodities continue to perform poorly (SGX Iron Ore -1.8%, Gold flat, ICE Natural Gas -2.2%). No respite for equities in the Asian session with the sour mood continuing – Hang Seng down -2%, Nikkei down -0.5% and the ASX closing basically flat. A relatively quiet day ahead on the data front, although the People’s Bank of China expected to back-up last week’s surprise cut to medium-term rates by lowering the 1y and 5y Loan Prime Rates to 3.4% and 4.05% respectively. If on-expectations, the 15 bps cut would be the largest in over 3 years as economy continues to grapple with lackluster growth & real estate on-tilt. If they cut by more than 15 bps later this morning, the Aussie dollar could get a sizeable lift.

USD

AUDUSD remained flat over the weekend to open today at 0.6408, while Wall St closed unchanged on Friday, although ultimately down for the week (S&P 500 -2.4%, NASDAQ -2.3%). The latter half of the week is jam-packed with US data, including PMIs on Wednesday, Unemployment Claims, Durable Goods Orders and New Home Sales on Thursday as well as various FOMC Member talks on Friday. This will give investors a fair bit to chew on and provides an opportunity for short-term USD volatility. Unemployment Claims will be of particular focus as the Fed and markets remain cautious that continued tightness in the labour market may lead to a wage-price-spiral, which would make it more difficult to bring inflation back to market sustainably.

EUR

AUDEUR opens slightly higher at 0.5894 after Friday’s Final CPI y/y arrived at +5.5%, with markets currently pricing in a 50% implied probability of a European Central Bank interest rate hike in September. The key focal points this week will be Wednesday’s PMI data (French, German, Eurozone) and Friday’s German ifo Buiness Climate release, being a survey of approximately 9,000 businesses which asks respondents to rate the relative levels of current business conditions. FX volatility is expected around both data releases.

GBP

AUDGBP has gained a small amount of ground over the weekend, opening today at 0.5031, after Friday afternoon’s Retail Sales data posted markedly lower than expectations. Retail sales including fuel dropped -1.2% m/m, while the ex-auto fuel gauge was -1.4% m/m, although the impact was quite contained given the little weight that retail sales is given in the Bank of England’s monetary policy decision making (compared to inflation and wage figures). No meaningful data for the Pound ahead of Wednesday’s Flash PMI figures, where the manufacturing sector is expected to show further contraction, while the services sector is expected to show minor expansion.

NZD

AUDNZD opens at 1.0815 after a quiet Friday few days in terms of Kiwi data. Today, we’ll see NZ’s Trade Balance & Credit Card Spending m/m, while Wednesday morning will bring quarterly Retail Sales data. Markets are expecting retail sales to contract for the third consecutive quarter, although the data will likely be disregard by the RBNZ as it made clear that they are comfortable with the current interest rate (5.5%) and that they are ‘ready to work through noisy data in the near term’.