Reserve Bank of Australia

Looking ahead, the upcoming week features interest rate decisions from three major central banks (RBA, BOC, and ECB), while data highlights include UK and US services PMIs, Aussie GDP, Chinese trade figures and jobs reports from both North American nations.

Mirroring last week’s shift at the Federal Reserve, the RBA has now shifted its future interest rate expectations into neutral.

We have already had some poor data on the housing market as building approvals slumped once again, and economists are not too optimistic on retail sales with the data scheduled to be released in the early hours of Tuesday, ahead of the Reserve Bank of Australia’s monetary meeting decision at 03:30 GMT.

As another volatile week is about to conclude, equity markets were coming under a bit of pressure and were giving back a big chunk of their gains from earlier in the week.

The AUD/USD fell to a low so far of just under 0.7150 from a high of about 0.7235 pre-RBA. Clearly, the bears appear to be in driving seat, but could that change soon?

The Reserve Bank of Australia (RBA) will make its rate decision in the early hours of Tuesday, which makes the Aussie the main focal point during the Asian session.

The primary market themes for the past week have been weaker-than-expected inflation pressures, a surge in the energy sector due in part to a planned US withdrawal from the Iran nuclear deal, and a partial reduction in geopolitical risk concerns due to North Korea’s apparent display of cooperation in releasing hostages ahead of US/NK June talks.

The US dollar slid sharply late last week due in part to President Trump’s announcement of impending U.S. import tariffs on steel and aluminum, sparking fears of global trade wars on the horizon.

The Canadian dollar has been the worst performer among the major currencies today, continuing its recent poor run of form.

Two primary catalysts for the return of sharply elevated market volatility emanated from the U.S. – Fed Chair Jerome Powell’s hawkish testimony in front of the US Congress, and US President Trump’s announcement regarding sizeable import tariffs on steel and aluminum.

The past week in the markets has been dominated by dramatic, and often incongruent, moves that have been marked by still-buoyant volatility in the aftermath of the preceding week’s wild market swings.

Early next week features some key releases from Australia, including the minutes from the last Reserve Bank of Australia (RBA) monetary policy meeting in early February, and the quarterly Wage Price Index.

As the US dollar remained well-supported on Monday in the wake of last Friday’s highly positive US jobs report, and equities continued to trade under heavy pressure on rising interest rate expectations, Australian dollar traders were bracing for the potential impact of a major central bank decision and key economic data to be released on Tuesday in Australia.

Looking ahead this week, several key data releases will likely have a significant impact on AUD/USD.

Markets this past week were dominated largely by key central bank speakers, a pivotal OPEC agreement, another missile launch by North Korea, and a scramble by the US Senate to vote on a critical US tax reform bill. On Friday morning, however, equity markets and the dollar were suddenly rocked by reports that former US national security adviser, Michael Flynn, will be testifying that President Trump directed him to make contact with the Russian government in the growing scandal that continues to threaten Trump and his administration.

The past two-and-a-half months have seen the Australian dollar weaken considerably against the US dollar.

The week ahead will be slower in terms of economic data than the past week. Contributing to this slowdown will be the major Thanksgiving holiday in the U.S. Aside from speeches by heads of key central banks, including the European Central Bank, Reserve Bank of Australia, Federal Reserve, and Swiss National Bank, the week will be dominated by the release of minutes from several central bank meetings.

AUD/USD tentatively broke down on Monday below a key chart pattern, indicating a potential continuation of the downtrend that has been in place since early September.