The Australian dollar was up against the US dollar on Monday despite rising bets that the Reserve Bank of Australia is set to lower Australian interest rates at its regular policy meeting tomorrow. The US dollar index is falling after the Federal Reserve offered its own hints that US interest rates could also be set to drop.
AUD/USD was higher by 40 pips (+0.62%) to 0.6545 with a daily price range of 0.646 to 0.657 as of 3pm GMT. Gains the currency pair struggled at resistance near 0.656 which had resisted further gains on Thursday last week. AUD/USD is just off its 11-year lows after having lost -1.78% last week.
The Australian dollar
On Monday the Australian currency took its cues more from overall risk sentiment where stock markets were rising than mixed economic data. While data at home showed some modest improvement with Australian manufacturing returning to expansion in February, data from China was poor with the Chinese factories recording the lowest activity on record.
A reported 33 cases of the coronavirus in Australia is compelling authorities to act now and fend off the resulting slower domestic economic activity in the likely instance the spread worsens. The economy has already been hit by falling trade with China, its number one trading partner. Financial futures markets are pricing a 100% chance that the RBA cuts interest rates at tomorrow’s monetary policy meeting.
The US dollar
The over 500-pip slide in the AUD/USD exchange rate since the start of the year was markets pricing in the increasing likelihood that the Reserve Bank of Australia would have to raise interest rates. Now with that decision less than twenty-four hours away, the Aussie is making up some of the lost ground. Australia could well be the first developed country to respond to the coronavirus with easier monetary policy but other counties, including the United States look set to follow.
The US Manufacturing PMI for February fell to 50.7 when 50.8 was expected. Falling export sales and supply chain delays were behind a marked deterioration according to Markit who conducted the research.