AUD/USD hovers around 0.6950s ahead of RBA Lowe’s speech

The AUD/USD begins the week on the right foot, with 0.25% gains. The positive market sentiment due to China’s covid-linked news and the US weighing lifting restrictions on China’s increased appetite for riskier assets.

Amid this positive sentiment, US equity futures closed earlier due to a holiday. That, alongside China’s Covid-19 crisis getting under control and US President Biden weighing removing some trading tariffs to China, was welcomed by investors, as shown by climbing AUD/USD prices.

Despite the AUD/USD jump near the 0.7000 area, falling Iron Ore prices capped the rally. It was reported, over the weekend, that China wants to set up a central group to control Iron Ore imports by the end of the year.

If that’s achieved, AUD/USD traders should be aware that some of Australia’s 697 million tonnes of exports would take a hit, and with it, the Australian dollar.

Fed speakers’ comments gained much attention. Throughout the weekend, Fed member Christopher Waller backed a July 75 bps rate hike mentioning that inflation needs to be brought down, regardless of the cause. Meanwhile, Cleveland’s Fed President Loretta Mester noted that inflation would not reach the Fed’s 2% target while mentioning that although the Fed’s Summary of Economic Projections foresees the US economy slowing down, she said that she’s not “predicting a recession.”

On Tuesday, the Australian economic calendar will feature the Reserve Bank of Australia Governor Philip Lowe speaking. The central bank will also release minutes of its June meeting, at which it decided to hike by a surprisingly large 50 basis points to 0.85%, and markets are wagering on a similar-sized move for July as well.

The US economic docket will feature Existing Home Sales for May, and further Fed speakers, with Richmond Fed President Thomas Barkin.
Fed speakers reiterated the US central bank’s commitment to tackle inflation down. The Australian dollar edges up in the North American session, even though a bank holiday in the US kept trading conditions thin due to a lack of volume in the FX markets. At 0.6952, the AUD/USD bounces off daily lows at 0.6915 after reaching a daily high near 0.7000.

In China today, iron ore futures have all plummeted as local markets join the US ones in anticipating probable economic slowdown. Chest thumping over the weekend by China around the Taiwan Strait, and legislation allowing Russian-style “special operations” will not be giving regional Asia much comfort either.

It is noteworthy that the AUD/USD fell 1.60% on Friday to 0.6935 before rising to 0.6955 in Asia. NZD/USD fell 0.80% to 0.6315 on Friday before rising to 0.6330 in Asia. A US holiday is dampening volumes but both Australasians have traced out bottoming patterns on the charts. As long as 0.6850 and 0.6200 hold respectively, further gains to 0.7150 and 0.6450 cannot be ruled out.

The Reserve Bank of Australia Minutes will be released on Tuesday, with markets searching for any clues on the direction of RBA interest rate policy. How high, and for how long, will rates move higher? Friday’s Japan Inflation Rate will have more interest than any time over the last 20 years I expect as the Bank of Japan defied the word and maintained super-easy monetary policy last Friday. All Asian events and developments will surely influence the Australian economy and of course the Australian dollar.