Australia: The AUD continues to trade close to the top of its recent trading range, supported by the currency control changes out of China. The market was a little disappointed yesterday that the Chinese Central Bank did not allow the yuan to appreciate by the maximum allowable one-day limit against the USD, but with further appreciation expected, the outlook for commodity prices, and as a result the AUD, remains positive. Today’s government leadership challenge has the potential to cause some volatility in the market, particularly if there are any signs the Federal government may review their stance on the mining super tax. Any sign of a backflip on the proposed tax would likely be a positive for the AUD.
Majors: All eyes were focused on the Federal Reserve overnight and the FOMC’s announcement on interest rates. As was expected, there was no change to the Fed’s benchmark interest rate, which remains at a record low of zero to 0.25 percent, however the accompanying statement did express some concern about the outlook for world economic growth. In a carefully worded statement, the Fed said “financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad”. Such wording has allayed any fears the Fed will begin their tightening cycle any time soon, with most economists now predicting they won’t begin to raise its rates until at least the 1 quarter of next year. The release of new home sales data in the US overnight also highlighted the need for the Fed to sit tight on rate increases. New home sales in May fell to a record low of 300,000, a massive 33% fall from the previous month, and the lowest figure since 1963. As a result of the overnight events the USD lost ground against the JPY and also the EUR.