The challenges for the Aussie are increasingly homegrown too.

After becoming a casualty of the leadership spill and recovering almost all of its losses on the elevation of Scott Morrison to prime minister, the currency faces mounting risks, experts conclude.

"In our view, downside risk for Australian interest rates and the AUD have increased significantly," Amplifying Global FX Capital's Greg Gibbs said in a Friday note.

"The persistent increase in bank funding costs that has led Westpac to raise mortgage rates is a further tightening of monetary conditions and comes at a precarious time for the housing market," he said.

In a short window, on and apparently off the record, President Donald Trump last week hammered Canada, rejected the European Union and threatened China. AP

Eyes on monetary policy

In addition, Mr Gibbs said Australian political risk has increased as an election approaches in about six months and recent economic data suggest some moderation in activity.

The week ahead, starting with Monday, will provide a raft of data to help investors rethink the outlook for the local economy, interest rates and the currency.


On Monday, there's retail sales for July, Australian Industry Group's August manufacturing index, MI inflation for August and ANZ job ads for August. On Tuesday, the RBA holds a policy meeting and governor Philip Lowe is set to speak at a board dinner meeting in Perth.

On Wednesday, there's the highly-awaited second-quarter GDP report and AiG's services index before July trade balance data on Thursday and Friday's AiG performance of construction for July and housing finance for July.

While no change in rates is expected this week, Mr Lowe has a chance at a post-meeting news conference and later in his speech to provide clues on the policy outlook.

"The bank has done a lot of work to clearly communicate that the next move in rates is more likely to be up than down, progress in reducing unemployment and returning inflation to target is expected to be gradual and so it is happy to stay on hold for 'a while'," NAB economist Kaixin Owyong said.

"We expect no change to its core message," Ms Owyong said. "However, we'll be on the lookout for any indication that recent developments may have affected the outlook. In particular, markets will look out for any remarks related to the recent increase in home loan rates by Westpac.

"The RBA's view has been that the current credit slowdown is mostly demand-driven, and has downplayed credit tightening – does this change their view in any way?"

Bears roaring

Also checking the Australian dollar is the gap in yield between the US and Australian 10-year government securities, which reached 34 basis points over the weekend, another sign that investors see lower risks for their money in the US than here.


An expectation that the gap will increase to 60 basis points in the first half 2019 was one reason why RBC Capital late last month pushed the potential for a local rate hike to the second half of 2019.

Westpac's rate move will further limit the RBA's ability to hike, according to RBC's chief Australian economist Su-Lin Ong and macro rates strategist Robert Thomson.

"Tighter funding conditions are one of three key factors we've been highlighting for some time as likely to keep the RBA on hold for longer," Ms Ong and Mr Thomson said in a Friday note. "The other two factors are downside risks to global growth and plentiful spare capacity in the Australian labour market."

A week earlier the two RBC experts said the longer the RBA sits at 1.5 per cent, "the less sure we are about the direction of the next move, especially if global activity turns more modest" in the second half of 2019 and 2020.

Mr Trump's decision to turn his rhetoric on trade into reality may indeed brake global growth as the International Monetary Fund has forecast.

And so it would appear that Australian dollar bears will be smiling for longer.