Australian Dollar Pullback May Continue as Risk Appetite Cools

The Australian Dollar underperformed in otherwise quiet overnight trade, with the sentiment-sensitive currency falling alongside share prices. The MSCI Asia Pacific equity index fell for a second consecutive day in a move that may reflect pre-positioning ahead of next week’s event risk.

The regional benchmark hit a two-month high mid-week. The absence of high-profile items on the docket may have inspired a round of precautionary profit-taking as investors rebalance exposure toward a more risk-neutral setting ahead of next week’s news flow, headlined by the FOMC policy announcement.

Looking ahead, the final revision of May’s German CPI figures seems unlikely to generate a significant response from the Euro considering the outcome’s limited implications for near-term ECB policy trends. A downtick on June’s University of Michigan gauge of US consumer confidence may likewise pass with little fanfare, with traders probably unwilling to commit to a directional bias on the US Dollar for now.

This leaves sentiment trends at the forefront. European and US stock index futures are pointing cautiously lower, hinting the risk-off bias may carry through in the final hours of the trading week. “Brexit”-related headline risk remains a wildcard as the fateful referendum looms ever-closer.

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