FX Compass

While near-term risk is for a broad dip in the USD as Bernanke speaks later today, we feel that the next leg of the “normalization” of the AUD could start soon. We see several likely catalysts:

• With the recent Australian data coming in weak (unemployment went up and NAB business conditions softened further) we think that the early August RBA meeting is very much in play. We do not agree that minutes from the previous meeting dialed down the dovishness, and highlight that the minutes were written before the latest round of weak data.

• As we discuss in the macro section, Chinese growth is likely to slow in Q3, with the next round of releases (starting with the flash PMI on 24 July) likely to highlight the continued slump.

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