The Australian Dollar sank after June’s Building Approvals report fell short of expectations, boosting bets on an RBA interest rate cut at Augusts’ meeting.

Talking Points

Australian Dollar Sinks as Building Permits Miss Drives RBA Rate Cut Bets
Euro May Weaken as German CPI Slowdown Boosts Dovish ECB Speculation
US Dollar to Resume if July’s Consumer Confidence Report Underperforms

The Australian Dollar underperformed in overnight trade, sliding as much as 1.4 percent on average against its top counterparts, after a disappointing set of Building Approvals data boosted RBA interest rate cut expectations. Permits fell 6.9 percent in June, marking the largest monthly drop since July 2012. Traders are now pricing in a 90 percent probability of a 25bps reduction at the next policy meeting, the highest in two months. The Japanese Yen weakened as Asian stocks advanced, boosting demand for carry trades funded in terms of the perennially low-yielding currency.

July’s German Consumer Price Index data headlines the economic calendar in European hours. Expectations call for the headline year-on-year inflation rate to decline to 1.7 percent, moderating from a six-month high at 1.8 percent recorded n the prior month. The Euro continues to track monetary policy expectations, hinting a soft print may weigh on the single currency as traders price in a greater probability of a dovish ECB when the central bank delivers its monthly policy announcement later in the week.

The spotlight then shifts to the US economic calendar, where July’s Consumer Confidencefigure will helpinform speculation surrounding the Fed’s intentions to “taper” the size of its QE asset purchases. On the whole, US economic outcomes appear to be losing momentum relative to expectations over recent weeks. This keeps the door open for a disappointing print that undercuts the case for a near-term reduction in stimulus and applies renewed downward pressure on the US Dollar.

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