Synopsis:

ANZ highlights the asymmetric risks for the Australian Dollar (AUD) ahead of this week’s Australian monthly CPI and retail sales data for July. Investor enthusiasm for the AUD has cooled, with a potential downward surprise in these prints likely to trigger a larger negative reaction.

Key Points:

• Investor Sentiment: Recent AUD/USD spot flows indicate a shift from net buying to net selling among investors, coinciding with the stalling of AUD/USD’s rapid advance near the 0.675 threshold, close to mid-July highs.

• Economic Data Focus: The market is closely watching this week’s monthly CPI and retail sales data for July. Despite the Reserve Bank of Australia’s (RBA) hawkish rhetoric, markets remain skeptical, with expectations still leaning towards a rate cut before the end of 2024.

• Asymmetric Risk: ANZ suggests that while an upward surprise in CPI or retail sales would provide only marginal support to the AUD, a downward surprise could lead to a more significant negative reaction, particularly in AUD/USD and AUD/NZD.

Conclusion:

ANZ sees asymmetric risks for the AUD heading into the release of Australia’s monthly CPI and retail sales data. A positive surprise might offer limited upside, but any downside surprise could lead to a substantial decline in AUD/USD and AUD/NZD.