AUD tests break below US$0.65 amid risk-off mood
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Daily Currency Update
The Australian dollar underperformed through trade on Tuesday, sliding back below US$0.65 as a risk-off mood enveloped markets. Equities edged lower led by weaker IT stocks while commodity stocks tumble, led by a 1% fall in oil and Iron Ore. Markets were little moved by the announcement from Chinese Premier Li that China will target economic growth of 5% this year. The target is seen as ambitious given the current challenges facing the economy and markets remain sceptical that China will issue the necessary stimulus. With key tech stock falling and a risk-off mood taking hold the AUD hit intraday lows at US$0.6478 before softer-than-anticipated US ISM services data sent the USD lower and allowed the AUD to edge back above US$0.65.Our Attention now turns to domestic GDP data where we expect a slowdown in growth led by softer private consumption. A dip in activity will allow the RBA to maintain the current policy setting and monitor the impacts of restrictive policy on activity and inflation. We are watching moves around US$0.65 as a key pivot point. A break below US$0.6480 could signal an extension in the bearish channel while a break above US$0.6530 may open the door to near-term upside.
Key Movers
The US dollar edged lower through trade on Tuesday following a softer-than-expected ISM services report. The headline reading slipped to 52.6, down from 54 and below expectations, with key employment sub-indexes sliding into contractionary territory, suggesting a softening in the labour market ahead of Friday’s all-important non-farm payroll print. The dollar fell against the euro and the GBP while the yen was the day's best performer, benefiting from lower US treasury yields and the risk-off tone. Reports Prime Minister Kishida will be attending meetings with Unions and employers in a bid to stimulate wage increases have bolstered hopes the Bank of Japan may be able to call time on its negative rates policy. The USD slipped below ¥150 and opened this morning at ¥149.97.Our attention now turns to commentary from Fed Chair Jerome Powell and ADP employment numbers ahead of tomorrow’s European Central Ban policy update and Friday’s non-farm payroll print.
Expected Ranges
- AUD/USD: 0.6450 - 0.6530 ▼
- AUD/EUR: 0.5950 - 0.6050 ▼
- GBP/AUD: 1.9400 - 1.9600 ▲
- AUD/NZD: 1.0650 - 1.0750 ▲
- AUD/CAD: 0.8800 - 0.8900 ▲