Forex
AUD/USD Caught in Policy Risks Ahead of Q2 GDP Report
The Australian dollar's eight-week winning streak was snapped last week after Fed Chair Kevin Warsh's hawkish Jackson Hole speech revived US rate-hike bets. However, stronger Australian inflation and household spending have also raised expectations of another RBA hike, leaving AUD/USD caught between competing policy risks ahead of key economic data releases this week. According to the COT report, net-short exposure among large speculators and asset managers remained around 90k despite a sharp rise in longs and shorts. This suggests that traders were hedging their bets before the hot CPI report. The rebound of the US dollar on Friday saw the Aussie close marginally lower to form a small shooting star candle.
Australia's Q2 GDP report is set to be released this Wednesday, which could reinforce RBA hike bets if growth remains strong. NAB and Deutsche Bank expect a September hike, while ANZ and CBA favour November. Meanwhile, the US nonfarm payrolls report on Friday will be closely watched for its impact on Fed hike bets and the US dollar. A resilient payrolls report could strengthen Fed hike bets and the US dollar, while another soft or negative print would test the market's newly hawkish interpretation and potentially support AUD/USD.
The RBA-Fed cash rate spread is becoming increasingly important for AUD/USD, particularly if markets become more confident that the Fed has two more hikes to deliver. If the RBA hikes once and the Fed twice, the RBA-Fed cash rate spread would narrow to just 10bp. This could lead to a re-evaluation of relative rate expectations and their impact on the Australian dollar.
The technical analysis suggests that AUD/USD is currently being driven by idiosyncratic factors rather than broad US dollar or risk-on/risk-off moves. However, the inverse relationship with the US dollar has softened to -0.67, highlighting some divergence between the Australian dollar and broader risk sentiment.
Australia's Q2 GDP report is set to be released this Wednesday, which could reinforce RBA hike bets if growth remains strong. NAB and Deutsche Bank expect a September hike, while ANZ and CBA favour November. Meanwhile, the US nonfarm payrolls report on Friday will be closely watched for its impact on Fed hike bets and the US dollar. A resilient payrolls report could strengthen Fed hike bets and the US dollar, while another soft or negative print would test the market's newly hawkish interpretation and potentially support AUD/USD.
The RBA-Fed cash rate spread is becoming increasingly important for AUD/USD, particularly if markets become more confident that the Fed has two more hikes to deliver. If the RBA hikes once and the Fed twice, the RBA-Fed cash rate spread would narrow to just 10bp. This could lead to a re-evaluation of relative rate expectations and their impact on the Australian dollar.
The technical analysis suggests that AUD/USD is currently being driven by idiosyncratic factors rather than broad US dollar or risk-on/risk-off moves. However, the inverse relationship with the US dollar has softened to -0.67, highlighting some divergence between the Australian dollar and broader risk sentiment.