A$ Consolidates Above 0.7000, RBA Expected To Hike 50bps Today

AUD/USD bounced above 0.7000 early in the offshore session overnight, getting close to 0.7050, before selling interest emerged. We consolidated above the 0.7000 level and track just under 0.7030 in early trade today. The DXY continued to track lower, but the A$ underperformed JPY and NZD.

• Cross asset signals were generally negative for the AUD, aggregate commodities (-1.66%) and base metals (-0.78%) falling at the start of the week. Iron ore dipped to $113/tonne, with weaker China manufacturing PMI data weighing.
• Weaker US and EU data didn't help the global outlook, although the ISM manufacturing was more resilient than expected. The US yield curve inverted further in the 2/10s space. The AU-US 2yr spread spent the early part of this week between -45 to -50bps.
• The VIX was higher, as US equities fell modestly, although we remain below the 50-day MA (22.84% close versus 24.38%). AUD/JPY continued to track lower, falling through the 100 day MA to 92.50, as JPY continued to outperform in the G10 FX space.
• AUD/ZND fell sub 1.1080, before stabilizing somewhat. We are back close to 1.1100. Weaker China PMI data and lower yield spread differentials are weighing on the cross.
• Today the focus will be on the RBA, which is widely expected to deliver a 50bps hike. More focus is likely to rest on forward guidance and the inflation outlook (see our preview here for full details).
• Prior to this home loans and building approvals data prints, which are expected to be negative, as the domestic housing market continues to cool.