Aussie & Kiwi Higher Ahead Of RBA Meeting Today

The Aussie dollar is trading at 0.7515 points after Reserve Bank of Australia keep interest rate on 1.75%. The kiwi was able to capitalize on the lower dollar to gain 60 points to trade at 0.7203 after approaching its highest level in 2016. The results of the Australian elections did little to effect currency values. The result will not be decided until at least Tuesday, which is when vote-counting resumes. Chinese services PMI reported much better than expected lowering the outlook for immediate stimulus.

The uncertainty, together with an increased risk of Australia having its “AAA” credit rating cut has “dented” the country’s currency, according to Mizuho Bank.

Australia’s central bank is also expected to hold fire at its policy meeting on Tuesday, analysts at Capital Economics said.

“The fallout on the economy and financial markets from the uncertain outcome of the Federal election will probably be relatively mild and short-lived and is unlikely to prompt the Reserve Bank of Australia to cut interest rates from 1.75% to 1.50%.”

However, the Australian central bank keep its policy at status quo holding cash rate at current levels of 1.75%.

Attention will turn in the coming week to the outcome of the Federal Reserve’s June meeting and the monthly U.S. jobs report. Last month, the negative jobs report provided a bleak outlook for the global economy and lowered expectations for an interest-rate increase in the coming months. The US dollar eased to trade at 95.61 dipping 11 points on the holiday session.

The pound was able to rebound 40 points to trade at 1.3305 as traders correct for over actions after the BOE Chiefs speech.  The pound weakened towards April 2014 lows in the previous week after the Governor of the Bank of England Mark Carney said he believed it appropriate that the BoE should introduce new monetary easing measures.

Carney suggested the measures were necessary to shield the UK economy from any negative impact associated with the UK’s decision to exit the European Union.

Achieving ‘monetary easing’ is best done through cutting interest rates and expanding the asset purchase facility, otherwise known as quantitative easing.

Both programs seek to increase the amount of capital flowing in the economy which, it is hoped, should aid companies invest in growth. A side effect of this increase in money is a weaker currency.

The previous period of rate cuts and quantitative easing, in response to the 2008 global financial crisis and ensuing recession, saw a significant devaluation of the pound.

The new round of monetary easing could be in place by August as Governor Carney did say he saw it appropriate that the moves were conducted over the summer.

Combined with the sheer uncertainty posed by the UK’s vote to leave the European Union the fundamental backdrop is one that favors further Sterling downside.

Bloomberg reported that the extreme bullish scenario among yen forecasters at the start of 2016 is now close to the base case – and even that may turn out to be too cautious.

The boldest forecasts for gains underestimated the Japanese currency’s strength in the first half of 2016 by at least 10 per cent. The yen exceeded all estimates as investors sought it as a haven after events that most considered unlikely came to pass – from Britain’s decision to quit the European Union to Donald Trump’s emergence as the presumptive US Republican presidential nominee. Strategists are still catching up, with June seeing the biggest monthly boost in year-end predictions since 2008. The yen continues to trade at 102.50.