Aussie impresses in the mid-0.66s
AUD finally broke its shackles over the last week, showcasing more emphatic and satisfying forward momentum. For the longest of time upside progress has been tough sledding. Global markets likely remain contained in the early part of this week, awaiting the outcome of a pivotal FOMC. The domestic calendar is headlined by August jobs.
Aussie impresses in the mid-0.66s
AUD finally broke its shackles over the last week, showcasing more emphatic and satisfying forward momentum. For the longest of time upside progress has been tough sledding - every fresh high has been marginal, exhausting and oozing with reluctance, even as the building blocks for a bout of more vigorous upside were coming together.
But over the last week AUD/USD established a more decisive foothold on the 0.66-handle and it’s been trading with a more self-assured tone in the upper-half of its rising channel lately.
AUD/USD starts the week at 0.6655 and a range of AUD-crosses are testing multi month highs: AUD/NZD is on the front foot at 1.1178, levels not seen since late 2024, while AUD/JPY is hovering just above 98.00. AUD/EUR has risen from the mat (0.5675), and AUD/GBP is testing six-month highs just above 0.4900.
Political & fiscal upheaval in Tokyo, Paris and London are periodically challenging EUR, JPY & GBP prospects, while shaky labour market/growth momentum stories are periodically capping CAD, USD & NZD. But AUD has the look of a genuine safe harbour on these metrics.
To be fair though, other than AUD/NZD, these are hardly eye-catching long-term breakout levels for AUD-crosses. But they are certainly firmer rates than what we have been accustomed to for much of 2025.
AUD owes a good amount of its latest upside moves to the dovish repricing in Fed expectations and signs that private consumption in Australia is returning to a surer footing (after the stronger Q2 GDP a couple weeks ago). That combination is helping yield spreads track back in AUD’s favour.
Robust global risk appetite conditions and low levels of global market volatility (despite periodic geopolitical flare-ups), are an ongoing background AUD positive too.
Global markets likely remain contained in the early part of this week though, awaiting the outcome of a pivotal FOMC. The domestic calendar is headlined by August jobs.
A 25bp Fed rate is considered a virtual forgone conclusion this week. A soft August payrolls, a big 900k+ provisional downward revision to the US jobs profile in the year to March 2025, and non-threatening Aug PPI/CPI prints sealed the case for a cut. To be clear, US inflation is traveling well above the Fed’s 2% target and tariff cost pass through is visible in the latest data, but not so much as to derail the case for cuts. Then there’s of course the heavy political pressure for rate cuts.
Markets expect Chair Powell to play it neutral in his press conference. The risks for now are clearly weighted to full employment side of the Fed’s mandate - justifying cuts - but tariff inflation risks still lurk.
Markets will wondering how the Fed Funds dot plot projections evolve too. As of June 2 x 25bp cuts were signaled by the median dot for 2025, and one 25bp cut in 2026.
There is also high interest around any potential dissents. President Trump’s temporary Board of Governor nominee Stephen Miran is likely to be confirmed by the Senate in time for this week’s Fed meeting. Will Miran dissent in favour of a larger 50bp rate cut? Will he be joined by other doves – Bowman and Waller? What about on the hawkish side? Scanning the Fedspeak over the last few weeks there are clearly one or two regional presidents who are not 100% on board with the idea of rate cuts right now.
A lot is riding on the outcome of the FOMC. Equities have been regularly hitting all-time highs in recent weeks, and US yields have fallen sharply. US10yr yield are hovering just above 4.00%.
If Chair Powell’s press conference, the dots, and any voting dissents overall land net dovishly the USD is likely to be marked lower still. Alternatively, a net hawkish outcome should give the USD a solid jolt higher.
China August activity data underwhelmed pretty much across the board today. Retail sales growth moderated to 3.4% y/y, from 3.7% y/y, industrial production growth slowed to 5.2% y/y, from 5.7% y/y, fixed asset investment slowed down to 0.5% y/y from an already modest 1.5% y/y, and to cap it off the surveyed jobless rate ticked 0.1ppt higher to 5.3%.
The slowdown looks broad and points to a slower GDP in Q3. Obvious culprits for the slowing include an end to export tariff-frontloading, clampdowns on overcapacity in key industries and fading 2024 stimulus supports. But at the same time China-centric markets are taking the slowdown in stride, expecting more fiscal and monetary policy stimulus. AUD didn’t skip a beat on the softer China data.
Aussie jobs lead the local calendars this week. Consensus expects a 21k gain, while Westpac expects +15k. Last month’s print was close to the average for the last couple years, at +25k, but the broad direction of travel has been towards moderation as the labour market rebalances.
Other notable events this week include Q2 NZ GDP, and central bank policy meetings for the BoJ, the BoE and the BoC.
It looks like NZ’s economy was on shaky grounds in Q2, with GDP expected to have contracted 0.4% in the quarter.
The BoJ is on hold while political uncertainty prevails in Japan. The BoE is on hold too, though Governor Bailey should continue to signal that direction of rates is lower over time. The BoC is expected to cut rates after a couple of very ordinary jobs reports, taking them to 2.50%.
Good luck in the week ahead.
Tuesday
- US Aug retail sales
Wednesday
- UK Aug CPI
- Canada BoC policy rate decision
- US FOMC policy rate decision and fresh summary projections
Thursday
- NZ Q2 GDP
- Australia Aug labour market report
- UK BoE policy rate decision
Friday
- Japan BoJ policy rate decision
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