Weaker economic news and dovish RBA policy rhetoric weigh on AUD
Overnight economic and policy news weighed on risk sentiment as RBA governor Stevens prepared the ground for a potential rate cut: he noted that Q2 inflation data leave room for further easing and that he would not be surprised to see a further fall in the Australian dollar – comments which pushed AUDUSD to a two-week low. The macroeconomic news was weak too: building approvals from Australia and New Zealand dropped 6.9% m/m and 4%m/m respectively. Similalry, the economic data elsewhere in Asia was lacklustre with significantly weaker than expected industrial production and household spending reports from Japan (notwithstanding a better labour market report). This, coupled with renewed stress in China’s money market, coincided with USD outperformance overnight, particularly against JPY. Looking ahead, we expect further USDJPY upside. However, any postponement of Japan’s consumption tax hike (given reports the plan could be scrapped or altered) would be a short-term JPY positive, as the BOJ might be less willing to add to its QE program if the government were seen to be stepping away from fiscal commitments. BNP Paribas economists do not expect consumption tax hike to be altered or scaled back.
Read the full report: FX Daily
BNP Paribas