AUSSIE PLUNGES AFTER RBA RATE DECISION; GREENBACK STEADY ON HOLIDAY
The Australian dollar was back on the defensive Tuesday, as traders assessed another status quo policy decision from the Reserve Bank of Australia (RBA).
The RBA voted to keep its overnight cash rate at 1.5% on Tuesday, where it has stood since August of last year. The decision, which was widely expected by the financial markets, comes at a critical time for the Australian economy. Faced with record debt levels, surging home values and rocky consumer spending, policymakers are opting for stability. This is likely to continue through the third quarter.
The Australian Bureau of Statistics also reported on Tuesday that retail sales rose 0.6% in May. That was double the rate forecast by economists.
Retail outlays are an important proxy for consumer spending, which was a major drag on GDP growth during the first quarter.
The Aussie ran into volatility at the start of the week, as the AUD/USD slipped from three-month highs. The pair continued lower on Tuesday, falling 0.6% to the low 0.7600 range.
Meanwhile, the euro also slipped following softer than expected producer inflation data. The producer price index (PPI) declined 0.4% in May, following no change the previous month, Eurostat reported on Tuesday. Analysts in a median estimate called for a decline of 0.2%. In annualized terms, the producer inflation index rose 3.3%, official data showed.
The US dollar index (DXY) traded slightly higher against a basket of world currencies Tuesday. DXY was last up 0.1% at 96.28.
In commodities, the oil-price rally cooled on Tuesday following eight days of gains. US West Texas Intermediate (WTI) was down slightly after gaining more than 2% at the start of the week.
The Aussie appears to be back on the defensive after failing to hold the psychological 0.77 handle. Despite the recent skid, the AUD/USD likely has further upside in store but is expected to run into selling pressure the closer it approaches 0.7750. It also remains to be seen whether the US dollar can extend early week gains into a more sustainable rally.
The common currency traded within a narrow band on Tuesday, as the dollar strengthened against a basket of world currencies. The EUR/USD is trading around 100 pips below its recent 14-month highs. Trading volumes are expected to remain subdued for the remainder of the session amid US Independence Day.
US crude prices slipped below $47.00 a barrel on Tuesday but remained generally well supported overall. Prices have run into a key resistance at the 50% Fibonacci retracement extending all the way back to the 24 May high. A clean break above the 50% level would lead to a re-test of the 61.8% Fibonacci retracement.