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Monthly Wrap: AUD - Australian dollar fluctuates on hawkish RBA and mixed risk appetite

currency-newsMonthly Wrap: AUD - Australian dollar fluctuates on hawkish RBA and mixed risk appetite
Key takeaways:
  • Australian Dollar bolstered by hawkish RBA rate hike
  • Risk-off flows quickly trim AUD gains
  • AUD Monthly lows: £0.56, $0.68, €0.65, NZ$1.09, C$0.88
  • AUD Monthly highs: £0.58, $0.72, €0.67, NZ$1.11, C$0.91
The Australian Dollar (AUD) was buoyed at the beginning of June as Australia’s trade balance printed above expectations at A$10.495bn.

Tailwinds were short-lived, however AUD gains were capped as finalised data confirmed a slowdown in services and manufacturing sector activity in Australia in May.

The ‘Aussie’ then spiked, as the Reserve Bank of Australia (RBA) hiked interest rates by 50bps rather than the 25bps forecast, in the first back-to-back rate hike in 12 years.

Yet bearish trading sentiment soon overcame this support, as fears of a recession gripped money markets – Australian commodity prices also fell.

Further losses stemmed from weaking confidence data the following week – NAB business confidence printed at half the expected figure while consumer confidence in June fell by 4.5%.

The ‘Aussie’ found some support as industrial production increased in the world’s second largest economy - China - however, Australian unemployment remained unchanged in May, applying headwinds.

Towards the end of June, AUD was subdued by dovish RBA rhetoric and falling export prices.

Following the central bank’s hawkish June rate hike, Governor Philip Lowe cautioned that a 75bps hike was off the agenda for July and advised that the RBA did not feel the need to bring inflation back to target ‘immediately’.

Looking ahead, AUD exchange rates will likely be affected in July by the RBA’s next interest rate decision and May’s trade balance data. Chinese inflation data may also influence the ‘Aussie’ as a proxy for the Chinese economy, while employment data could buoy the Australian Dollar if unemployment declined in June.

Toward the end of the month, Australian inflation is expected to have slowed, printing at 5.2% in Q2 from 5.1% in Q1. If this prompts investors to revise their RBA rate hike expectations the Australian Dollar could weaken.
Philip McHugh

Philip McHugh

Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure

Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)

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