Global Themes

Aussie hit as RBA calms rate hike speculation

The Australian dollar lost ground on Friday after the Reserve Bank of Australia tried to hose down recent speculation about interest rate hikes.

The AUDUSD rose to two-year highs last week after Tuesday’s RBA minutes discussed an eventual endpoint of 3.50% for local interest rates. The market saw this discussion as a potential signal of upcoming interest rate increases.

On Friday, however, the AUDUSD was hammered lower after RBA assistant governor Guy Debelle said in a speech that "no significance should be read into the fact the rate was discussed" and the current rate settings "will likely continue for the foreseeable future".

Big losses versus EUR, JPY

The response to Debelle’s speech saw the AUDUSD fall 0.6% on Friday.

Looking forward, close attention will be paid to the next big RBA speech with governor Philip Lowe speaking on Wednesday.

In other markets, the Aussie continued to see big losses against the euro.

The AUDEUR fell 0.9% as markets continued to buy the euro following last week’s upbeat statement from the European Central Bank.

In other markets, the AUD fell 0.8% versus the British pound and dropped 1.1% against the Japanese yen.

Local inflation and US Fed

We have a number of major releases that can drive markets with local data potentially pressuring the AUD this week.

Locally, Australian inflation on Wednesday and a speech from the RBA’s Philip Lowe on the same day will be the big events.

From overseas, manufacturing PMI numbers, which provide an early measure of economic activity, are released in Japan, Europe and the US over the next 24 hours, and can have an impact on commodity prices and the Australian dollar.

From the US, the Fed decision on Thursday morning and US GDP on Friday night will be the big market movers.

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