As traders awaited the Reserve Bank of Australia’s interest rate decision on Tuesday, betting that rates may have peaked, the dollar was strong and the Australian currency was under slight pressure.
The Australian dollar fell 0.5% in early trade to $0.6431. Markets are almost likely that the cash rate will remain at 4.1% when the RBA makes its decision in the next few hours. This is significantly lower than where U.S. overnight rates are at approximately 5.25–5.5%.
The focus of the meeting, which is the final for Governor Philip Lowe before Michelle Bullock assumes office, will be on the lessons that can be drawn from the prognosis. Australia reduced its prediction for wheat exports on Tuesday, despite current account statistics showing that volumes of all exports in the second quarter helped to strengthen the economy.
With volumes reduced by a U.S. holiday and no economic data to determine whether global inflation cycles may also be coming to an end, currency markets had been stable over the previous night.
Early in the Asia session, the euro was steady at $1.0793 after drifting up from recent lows. After the cash market closed on Monday, U.S. Treasuries opened lower in Asia, with 10-year rates rising 3 basis points to 4.20%.
The difference between Japanese yields, which are anchored near zero, and U.S. yields, which are comfortably above 4%, has widened overnight. Analysts predict that the yen will continue to grind towards 150 per dollar unless this gap narrows dramatically. 146.55 yen last time a dollar went.
If a Japanese government bond auction on Tuesday goes wrong and yields spike, it might change the situation, but a decline in family spending might keep rates in check.
“I do believe that 150 probably will be defended again, and the Ministry of Finance really probably wants to implant that in the market players,” said Bart Wakabayashi, Tokyo branch manager at State Street Bank, in reference to government FX intervention.
The focus in other areas is on how the data influences interest rates in the west and whether a trickle of stimulus measures in China indicate that Beijing will increase economic support.
Restrictions on buying a property are likely to be relaxed, and China has been lowering interest rates while intervening to support the yuan. On Tuesday, the yuan remained at 7.2825.
PMI data, European producer prices, which tend not to change significantly from previously announced forecasts, and U.S. industrial orders are all due later in the session.
Imre Speizer, a strategist at Westpac in Auckland, said: “The big thing is how the data pulse in each country plays out, which will inform whether these tightening cycles are definitely done – or maybe not.” “The game of waiting”