15/06/2015 10:37 AST
Trading in the Australian dollar was muted on Monday in the absence of real outcomes from the Greek debt crisis and the meeting of the Federal Markets Open Committee loomed.
In a day lacking in local data, the Aussie was buying US77.18¢ in late trade, reaching a high of US77.56¢ in the early hours, before settling below Friday's close of US77.44¢ which finished on a high after receiving a boost from surprisingly good jobs data.
Commonwealth Bank chief currency strategist Richard Grace said foreign exchange traders were waiting to see a real outcome in negotiations between Greece and its creditors before making their moves, and were becoming less reactive to daily news from the eurozone.
"While the euro is a little lower, the market's a little bit tired of deliberations for a solution to the uncertainty and we're not seeing huge amounts of volatility," he said.
The Australian dollar was up slightly against the euro on Monday, buying 68.9 euro cents. The euro was down 0.5 per cent against the US dollar, trading at $US1.12.
Westpac global head of market strategy Robert Rennie said there was growing evidence demand for the local currency was softening. He said an analysis of Japanese demand for the Aussie found it had come off first quarter highs, slowing in March and April.
"Japanese real money investors currently see AUD/JPY as cheap at 90 and below and expensive at 98/100. At current levels, ie 96/96, we are closer to the upper end of the range," he said.
"That would be consistent with reduced demand for the $A in recent weeks and the last month or so and likely going forward," he said.
Mr Rennie held Westpac's call for the Aussie to finish the year between US72¢ and US73¢ based on a further softening in commodity prices, rising and volatile bond yields and the increasing potential for a technical Greek debt default.
The dollar is also facing uncertainty in the week ahead. The Reserve Bank of Australia is due to release its board meeting minutes on Tuesday, which could add some downward pressure to the local currency. The minutes are widely expected to cement governor Glenn Stevens' position that the board had returned to an easing bias.
"We expect such guidance to appear in tomorrow's Board minutes but, these days, you just never know if the bias might vanish again. We hope not, because [the Australian dollar] will bounce," JP Morgan chief economist Stephen Walters wrote in a note.
Speeches from assistant governors Christopher Kent and Guy Debelle this week are also expected to follow this easing line.
But the two-day meeting of the Federal Open Market Committee in the US, which ends early Thursday morning, was likely to dominate the week's trading, FXCM currency strategist Ilya Spivak said.
"Investors will be acutely focused on what the outcome will mean for evolving speculation about the timing of the first post-QE interest rate hike," he said.
Clues as to a tightening in monetary policy could force a shift in priced-in expectations, he said, boding ill for risk appetite which had been boosted by the Fed's related post-global financial crisis stance.
"If this translates into broad-based liquidation across the spectrum of sentiment-linked assets, the Australian dollar will not be left unscathed," he said.
Mr Grace said he expected the Australian and New Zealand dollars to both finish the week on the downside due to a strengthening in the US dollar on the back of the Fed meeting. On Monday the Australian dollar was down ever so slightly on the kiwi, buying $1.11.
Financial Review
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