Australia Data: Westpac Leading Index for May: +0.21% m/m (prior +0.14%)

This data point is not usually much of an immediate FX market mover

AUD/USD Technical Analysis: Aussie Bullish Ahead of Brexit

The pair's upside is capped by a cloud top at $0.7528 with momentum bullish.

Risk-on sentiment returned to markets after the latest round of Brexit polls showed an overall lead for the 'Remain' vote.

The so-called aussie found support from iron ore prices, which jumped out of its steady trading range. Iron ore rose 2% to $ 51.70/tonne.

AUD/USD extended upside to hit a new monthly high at $0.7527, before giving up some gains to trade around $0.7518 on Thursday morning in Europe.

The intraday bias is bullish, with upside for now capped below the daily cloud top at $0.7528. Any break above will see further gains.

The pair has immediate support at $0.7463, which is the five-day moving average, and resistance at the cloud top at $0.7528.

The Brexit referendum takes place during the day, and victory of the remain campaign would further support riskier assets as it would calm down investors and boost risk-on sentiment.

Aussie Drops on Chinese Weakness

The aussie slipped across the board, after the yuan fix dropped against the US dollar to the weakest level since August 2015.

The People's Bank of China set today's USD/CNY at CNY 6.6375 vs Friday's fix at CNY 6.5776, moving the pair to the highest level since Jan 2011.

A weaker Chinese industrial profits print released earlier in the day also weighed heavily on the sentiment surrounding commodity currencies.

The pair found minor support at $0.74, which is a 20-day moving average, a break below would drag the pair lower to test the trendline at $0.7315.

Momentum studies are bearish, Stochs have rolled over from overbought levels, RSI is biased lower.

Immediate support and resistance are seen at $0.74 (20-DMA) and 0.4722(100-DMA). ​

Australia's election cliff-hanger leaves nation in limbo

Australia's political parties began horsetrading on Sunday to break an anticipated parliamentary deadlock after a dramatic election failed to produce a clear winner, raising the prospect of prolonged political and economic instability.

The exceptionally close vote leaves Prime Minister Malcolm Turnbull's center-right Liberal Party-led government in a precarious position, potentially needing the support of independent and minor parties to form government.

It has also opened the door to the possibility, albeit less likely, that the main opposition Labor Party could win enough backing from the smaller parties to form government itself, although Turnbull said on Sunday he remained "quietly confident" of returning his coalition to power for another three-year term.

"I can promise all Australians that we will dedicate our efforts to ensuring that the state of new parliament is resolved without division or rancor," Turnbull told reporters in Sydney.

Bill Shorten, the leader of the opposition Labor Party, said Australians had clearly rejected Turnbull's mandate for major economic changes like cuts to healthcare and company tax.

"What I'm very sure of is that while we don't know who the winner was, there is clearly one loser: Malcolm Turnbull's agenda for Australia and his efforts to cut Medicare," Shorten told reporters in Melbourne, referring the state healthcare service.

An election that was meant to put a line under years of political turmoil which has seen four prime ministers in three years has instead left a power vacuum in Canberra and fueled talk of a challenge to Turnbull's leadership of the Liberal Party, less than a year after he ousted then prime minister Tony Abbott in a party-room coup.

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AUD/USD: Aussie Slides on Political Uncertainty

With Brexit still at the fore of investors' minds Australia added to the sphere of political turmoil over the weekend when the ruling National Liberal Party lost their majority in government to a rising Labor party, sending the so-called Aussie lower on Monday.

The AUD/USD fell 0.50% to 0.7459 in morning trade in Sydney, from 0.7497 at the close of trade in New York on Friday.

Of the 150 seats in parliament, the coalition hold 72, while Labor has won 67. The Greens took out one seat while independents account for four. Six seats are yet to be decided, however, Labor is expected to win as many as four of them, giving the coalition little chance of forming a majority government.

While Prime Minister Malcolm Turnbull retained his position, Saturday's election is by no means a major victory for him, having lost 11 seats to the Labor Party.

Turnbull and opposition leader Bill Shorten are now in discussions with the four successful independents.

"In the near-term, increased uncertainty around the political outlook is likely to weigh on both household and business confidence," ANZ economists said in a note Monday. "Further out, a minority government and/or an unmanageable Senate will make it difficult to pass legislation, which could mean a delay of the return to budget surplus and possibly further speculation about the AAA credit rating."

RBA Preview: Global Forces Mount Pressure on Central Bank to Cut

Markets are pricing in only a 10% chance that the Reserve Bank of Australia (RBA) cuts the cash rate on Tuesday, but an August rate cut is looking increasingly likely after the recent UK referendum roiled markets and dashed hopes that the Federal Reserve (Fed) would do some of the RBA's legwork for them by hiking US interest rates this year.

"We think that the potential for the Fed to raise interest rates this year was a key reason holding the RBA back from cutting its own cash rate in recent months," economist Mieke Welvaert of Wellington-based Infometrics told WBP Online.

But with the Brexit vote on June 23 making a 2016 Fed hike all but impossible, Welvaert says the RBA will need to cut its cash rate this year.

"There is little to suggest that the RBA won't make this cut tomorrow apart from the fact that they have not yet had a chance to signal the decision to markets."

In May the RBA cut the cash rate to a record-low 1.75% after March-quarter inflation figures came in worryingly weak. The central bank has since held back from giving any indication of its next move.

But with core inflation likely to have remained below the RBA's 2-3% target range in the June quarter, and with the damage caused to confidence by the recent UK referendum - and now the weekend's Australian federal election - all bets are on the RBA easing in August.

Waiting until August gives the RBA the chance to see how markets settle over the next few weeks from the Brexit fallout, and to assess June-quarter CPI data, which is due to be released at the end of this month.

ANZ's head of Australian economics Felicity Emmett thinks the RBA will include a more explicit easing bias in tomorrow's statement, but doesn't anticipate a direct signal of an August cut.

"Specifically, we expect the bank to indicate that it is watching the evolution of the data and markets closely to assess both the outlook and the case for further easing," she said in a note.

Dollar doldrums

With the Fed unlikely to hike interest rates this year, upward pressure is likely to remain on the Australian dollar.

Since sinking to a cyclical low of US$0.68 near the start of the year, the Australian dollar has since appreciated as much as 13% in 2016. After the UK referendum the exchange rate dropped more than 4%, but managed to claw back half of its losses last week, highlighting the resilience of the Australian dollar despite uncertain circumstances.

"A strong Australian dollar threatens to weaken the country's export sector by making Australian goods relatively more expensive on global markets," Welvaert said. "The RBA will be wary of the effect delays in cutting their cash rate will have on the exchange rate and exports."

The stronger exchange rate also threatens to delay inflation returning to the 2-3% target range by making imported goods cheaper.

Resilient economy

Aside from Australia's weak inflation settings and the headwinds caused by the stronger exchange rate, the economy has managed to perform remarkably well over the last year, even amid a massive transition away from mining-led growth.

In the March quarter the economy recorded forecast-beating growth of 1.1%, led by exports and private consumption, which helped accelerate annualized GDP growth to 3.1%.

Australia's solid economic performance has underpinned a decline in the unemployment rate to a two-and-a-half-year low of 5.7%, where it has held since March.

Still, the economy is continuing to see a lack of non-mining investment growth, which the RBA has been calling on for some time now. The UK referendum and the Australian federal election will only add to the uncertainty clouding the business outlook in Australia, dampening investment and hiring intentions.

Overall though, the RBA is likely to be pleased with how the economy is doing against such a fragile global backdrop, meaning the bank's interest rate decisions are almost certain to come down to the inflation outlook.

"We do believe that the RBA will cut interest rates to 1.5% in August (and eventually to 1.0% next year), but that’s based on the weak outlook for underlying inflation and not the rise in political uncertainty," economist Paul Dales of Capital Economics said in a note. "The political paralysis, however, does leave the burden of supporting the economy firmly on the shoulders of the RBA."

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Australian dollar inches down as RBA awaited

The Australian dollar inched lower on Tuesday as investors awaited a monetary policy decision later in the session, while major currencies continued to tread water with U.S. markets shut on Monday for Independence Day.

The Aussie inched down 0.2 percent to $0.7525 , though it remained within site of Monday's more than one-week high of $0.7545.

The Reserve Bank of Australia is widely expected to skip a chance to ease again as it awaits second quarter consumer price data due on July 27, but markets are betting on a cut in August given low inflation and uncertainty following Britain's vote to leave the European Union.

All 37 economists polled by Reuters last week expected the RBA to keep the cash rate unchanged at a record low 1.75 percent.

Possible policy paralysis after no clear winner emerged from a weekend election also threatens to weigh on the Aussie.

"Brexit is not a direct threat to Australia, but over time the hit to investment and risk-taking sentiment may weigh on commodity prices, adding to the pressure on the RBA," Marshall Gittler, head of investment research at FXPrimus, said in a note.

"At the June meeting, the RBA basically kept a neutral stance and made no comment about which way the next move might be. The market will be focused on whether the statement continues that neutral stance or moves to an outright easing bias," Gittler said.

Brexit has ramped up the urgency for some Asian central banks to ease monetary policy, as a prolonged period of uncertainty threatens a wider downshift in trade and investment.

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AUD/USD: Aussie Turns Positive, Rises 1% from Daily Lows

The Australian dollar managed to erase all daily losses and jumped around 70 pips, or 1% from daily lows, with the pair turning positive ahead of the US session. Recently, the AUD/USD pair was seen around $0.7505, some 0.58% stronger on the day.

On Tuesday the Reserved Bank of Australia (RBA) decided to leave the cash rate unchanged at 1.75%, as widely expected.

RBA Governor Glenn Stevens said in the central bank's statement that financial markets have been unstable as investors have re-priced assets after voters in the UK decided to leave the European Union.

Traders will be focusing on US data, which will most likely cause further volatility on financial markets. Firstly, the services PMI for June is expected to stay at 51.3 points, but the non-manufacturing ISM is expected to improve to 53.3.

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Australian Construction PMI for June: 53.2 (prior 46.7)

AiG Performance of Construction Index ... yeah I did a double-take

• prior 46.7
  

• The national construction industry returned to growth in June
• The industry's highest rate of expansion in 10 months
• The rebound was driven by a solid upturn in the new orders sub-index which returned to growth (i.e. above 50 points) for the first time in eight months
• Conditions in June were also supported by an expansion in the activity sub-index (following falls in four of the past six months) and a lift in employment
• All four sub-sectors recorded growth in June
• House building gained further momentum with activity in the sector expanding at its highest rate in 30 months
• In addition, apartment building activity recovered strongly following two months of contracting activity
• Engineering construction expanded for the second time in three months (albeit marginally), while commercial construction activity recorded growth in June after two months of declines
• Residential builders were generally positive in their assessment of business conditions citing an improvement in new orders, support from on-going projects and steady investor activity
• The rise in engineering construction activity was attributed by some businesses to an improving inflow of new infrastructure work, particularly transport projects in NSW
• Competition for work, however, remains strong with a number of respondents indicating a continuation of intense pricing competition and tight margins
  

AUD/USD Technical Analysis: Bullish Momentum Wanes

Bullish momentum in the AUD/USD pair petered out after ratings agencies warned about Australia’s fiscal health.

On Monday the pair was trading flat around $0.7563.

The aussie has failed to benefit from resilience in iron ore and the fading political uncertainty in Australia.

Iron ore prices remained steady in the Asian session above $55 per tonne, while Prime Minister Malcolm Turnbull was declared victorious in the election.

Upside appears capped at the 61.8% Fib of $0.7835 to $0.7145 fall.

Technically the pair is poised for further gains, with a breakout above the 61.8% Fib needed to see the upside resume.

Support on the downside is seen at $0.7516 (5-DMA), $0.75 and then $0.7490 (10-DMA).

Resistance is seen at $0.7572 (61.8% Fib of $0.7835 to $0.7145 fall), $0.7580 (Apr 8 high) and $0.7720.​

Trade idea: Good to long a breakout above $0.7572 with a stop loss at $0.7515 and take profit at $0.76/ $0.7650/ $0.77.

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