The Australian dollar weakened overnight, influenced by disappointing Chinese economic data ahead of today's crucial Reserve Bank of Australia decision. The AUD/USD fell to one-month lows, finding support around 0.6575.
Ahead of today's RBA decision, a Reuters poll published on 14 June found that all surveyed economists expect the central bank to maintain the current rates. Australia’s latest monthly inflation report showed annual inflation rising from 3.5% in March to 3.6% in April, marking the second consecutive monthly increase.
While many other economies are experiencing easing inflation, Australia's inflation remains stubbornly high, making an RBA rate cut less likely. This could provide support for the AUD as we move into the second half of 2024. Local financial markets don't anticipate an RBA rate cut to be fully priced in until March 2025.
China's key monthly activity data showed a slowdown in industrial production (5.6% in May, down from 6.7% in April) and fixed asset investment (4.2% in May, down from 4.0% in April), both missing expectations. Retail sales, however, showed improvement.
Adding to the bleak outlook, Chinese house prices remained stagnant, with new home prices down 4.3% in May compared to the same period last year. The Chinese yuan also weakened, with USD/CNH rising 0.1%, approaching major resistance at seven-month highs.
In other markets, the euro strengthened, with EUR/USD rebounding from one-month lows. The euro had been significantly lower over the past week after strong performances by far-right parties in the EU parliamentary elections prompted French President Emmanuel Macron to call snap national elections for 30 June and 7 July. A Le Point poll, cited by Reuters on 14 June, found a "far-right" coalition at 29.5%, a "far-left" coalition at 28.5%, and Macron's centrist coalition at just 18%.
