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Aussie Rises On Hopes Of Trade Deal

Published June 19, 2019

Authors: Brett Gordon / Steve Oram

The AUD bounced a little overnight even after the release of the Reserve Bank of Australia (RBA) minutes from its June 3 monetary policy meeting. At that meeting, the Board decided to lower the cash rate by 25 basis points to 1.25 percent. The Board made this decision to support employment growth and provide greater confidence that inflation will be consistent with the medium-term target. Biggest headline was the RBA saying further Rate Cuts “More Likely Than Not”

AUD rose as optimism of a trade deal returns to markets following US and China President’s Trump and Xi agreeing to meet in Japan next week for extended talks at the G20 summit. Trump tweeted in a post “Had a very good telephone conversation with President Xi of China. We will be having an extended meeting next week at the G-20 in Japan. Our respective teams will begin talks prior to our meeting” The Kiwi rose 0.5% on the announcement.

Last week was a strong USD off the back of a dovish Fed. While most are anticipating three rate cuts from the Fed via the dot plot matrix, it may remain stretched. Today the USD short side could look attractive, but that said some areas could be more conducive for items of USD strength, and those are pairs like AUD/USD and USD/CAD.

Focus turns to the Federal Reserve meeting tomorrow morning with markets expecting Powell to follow the Dove’s with an 80% chance of a rate cut in July. Followed by RBA Governor Lowe giving a speech in Adelaide.

European Central Bank President Draghi offered the strongest indication yet that the central bank will unveil another round of stimulus if weak growth and political uncertainty continue. He  stated that there is “considerable headroom” to launch a fresh expansion of the €2.6tn quantitative easing programme.

Sterling could also be in for a bumpy ride over the coming days, with a range of potentially market-moving events with consumer inflation and retail sales tonight and the Bank of England’s monetary policy announcement on Thursday