Aussie Dollar Flat as RBA Meeting Looms

AUD

The Aussie Dollar opens relatively flat across the board this morning as markets await further details of the US-Iran peace deal that started a strong global market rally. Asian equities strengthened across the board yesterday after the U.S. and Iran agreed to end their war and reopen the Strait of Hormuz. The Nikkei ended +5%, Shenzhen +2.4% and Hang Seng +0.5%. Locally the ASX 200 gained 1.2% as materials and real estate sectors outperformed at +4% and +1.5% respectively. Today the focus shifts entirely to the interest rate decision later this afternoon, with the Reserve Bank of Australia widely expected to leave the cash rate on hold at 4.35%. Economists note the pause allows the board to evaluate the economy following three rapid rate hikes. Much attention will center on the post-meeting statement to see if the easing of inflation fears from lower energy costs will prompt a formal pause in the tightening cycle. Reflecting this, swap markets have aggressively dialed back expectations, now implying just a 22% probability of an August rate increase, down from 80% last month. The Bank of Japan will also meet today, and are expected to raise interest rates by 25 bps to a 31 year high.

USD

AUDUSD opens flat at 0.7071 amidst a dramatic pivot in global risk sentiment. Financial markets staged a massive relief rally and oil prices plummeted after the U.S. and Iran reached a comprehensive peace agreement to end hostilities and reopen the crucial Strait of Hormuz. Representatives signed a Memorandum of Understanding in New York, which includes a conditional $300 billion rebuilding fund for Iran, ahead of a formal signing this Friday. While some analysts warn long-term sticking points like Iran's nuclear program remain unresolved, Wall Street enthusiastically embraced the breakthrough, with the Nasdaq soaring +3.1%, the S&P 500 +1.7%, and the Dow Jones adding +0.9%. Looking ahead, U.S. Retail Sales data drops tomorrow alongside a highly anticipated G7 press conference from President Trump in France. This precedes Thursday's key interest rate decision, where newly appointed Federal Reserve Chair Kevin Warsh will preside over his first rate-setting meeting, with the central bank widely expected to hold steady. 

EUR

AUDEUR opens flat this morning at 0.6100. European shares jumped on the news of the Middle East peace deal, with the DAX gaining +1.1%, and the CAC up +0.4%. With no major economic data scheduled out of Europe this week, the focus is entirely on oil prices. A steady drop in crude oil following the peace accord should cool inflation risks, taking the pressure off the European Central Bank to keep aggressively raising interest rates, especially after their 25-basis-point hike last week. However, ECB policymaker Martins Kazaks warned overnight that inflation risks are still pointing upward and that the central bank remains ready to raise rates again if necessary. 

GBP

AUDGBP opens slightly up at 0.5271, matching the broader flat trend across the currency markets. British shares managed a modest gain, with the FTSE up +0.2%. Attention now turns to tomorrow afternoon's critical UK inflation data, which will provide vital clues for Thursday's Bank of England interest rate decision. UK Claimant Count Change data will also be released on Thursday and is currently forecasted at 25.8K (prev 26.5K).

NZD

AUDNZD opens in the green at 1.2139 this morning. ANZ’s economics team said this week it now expects the Reserve Bank of New Zealand to lift the OCR, possibly hitting 3% by the end of the year. On the data front, New Zealand house prices were flat in May, though economists noted the market remains more resilient than expected. The focus now turns to Thursday’s first-quarter GDP release, which is expected to bounce back to 0.8% from the previous 0.2%.