AUD in focus ahead of RBA minutes

The main theme in the FX space was a US dollar recovery after having been smashed in Asia yesterday on the back of the Larry Summers news.

Some have pinned the recovery in the USD on comments from ex-Fed member Kohn who warned about the risks of keeping extremely easy monetary policy for too long. AUD/USD came very close to 0.94 again in overnight trade but has since pulled back as the USD regained some ground, despite disappointing Empire state manufacturing index and industrial production readings. Data-wise, today we get the RBA Minutes, with the market looking for some more clarity after the omission of the ‘scope to ease’ phrase.

Perhaps fears that the minutes won’t be as hawkish as the market initially interpreted are resulting in a bout of profit-taking today. Should the minutes continue to sound an extremely dovish tone then we could see further AUD selling in Asia. Overall though, the pair has been stuck in a range 0.925-0.94 for a week or so and we feel this range might hold heading into the Fed meeting.

We also have new motor vehicle sales due out at 11.30am but we feel this data will be a non-event. AUD/USD traded as high as 0.9387 overnight and is now back at 0.93 ahead of the minutes.

Japan has returned to trade today and we are seeing some interesting moves in the yen. The Nikkei was closed yesterday in observance of Respect for the Aged Day. Meanwhile the rest of Asia rallied on the Larry Summers news which saw the USD lose ground to the majors. However, a weaker USD is actually negative for Japan as it pushes USD/JPY lower, and we actually saw the pair drop to 98.46 yesterday. As a result, the fact that Japan was closed could have actually been a blessing in disguise as the USD has now come back to life and USD/JPY trades back above 99. USD/JPY is just hanging at around 99.15 and we feel it will remain relatively sidelined ahead of the Fed and BoJ Gov Kuroda’s speech on Thursday.

EUR/USD popped higher to 1.338 but has since pulled back to 1.333 as ECB President Mario Draghi continues to sound a cautious tone. At 19:00 AEST we get the latest ZEW confidence read and once again this survey is expected to improve.  Good numbers here could support EUR/USD as well, despite Mario Draghi continuing to stay relatively cautious. GBP/USD traded to a high of 1.5963 yesterday on USD weakness caused by Larry Summers stepping out of the race for the Fed chairman role. In UK trade at 18:30 AEST we get the latest inflation read and the market expects a gain of 2.7% on the year, although core inflation is more manageable at +2.1%. A strong number here could push cable through 1.60.

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