The Australian dollar is mixed today. AUD is currently strengthening against the US dollar and the Canadian dollar, while selling off against the euro, the British pound and the yen. Last week, the currency rallied as fears of a US-China trade war fell after Chinese President Xi made conciliatory remarks at the Boao Forum.
Looking at the currency in recent history, the Australian dollar continues to be supported by rising Australian government bond yields. 10-year Australian government bonds are currently yielding 2.756%, up from around 2.60% in late March. While the Australian dollar is typically a high yielding currency (thanks to Australia's historically fast growth), Australian bonds now offer lower yields relative to comparable US bonds.
Looking at other assets, Hong Kong's Hang Seng Index and the Shanghai Composite have both suffered significant sell-offs today. The Australian dollar is fairly sensitive to movements in Chinese financial markets thanks to the country's significant trading relationship with China. While this remains true, reactions in the currency are limited today. Our short-term outlook on the Australian dollar is neutral, while our medium-term outlook remains bearish.
AUD/USD is up slightly today and trading just above 0.7770. EUR/AUD is flat and trading above 1.5880. GBP/AUD is flat and trading above 1.8340.
Looking at economic data relating to the Australian dollar this week, important data releases include changes in employment for March. Tomorrow, we’ll see the RBA’s meeting minutes. On Thursday, we’ll see the Westpac leading index for March as well as NAB business confidence for Q1 2018. More importantly, we’ll see changes in employment and the unemployment rate for March. Last week, RBA Governor Philip Lowe suggested that monetary policy is likely to remain in neutral.