AUD continues slow and steady recovery
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Daily Currency Update
The Australian dollar edged higher through trade on Tuesday, testing a break above US$0.6550. Despite a general risk-off mood in the AUD and sustained strength across US rates, the AUD continued its post-US CPI recovery marking intraday highs near US$0.6575. The RBA minutes, while offering few surprises did offer some support as they revealed a possible rate hike was discussed. While it is unlikely officials entertained the notion for long the fact a rate hike is still on the table lends the AUD support in an environment in which other major central banks are moving toward a cut, a fact highlighted overnight after softer Canadian CPI data prompted markets to bring forward rate cut expectations. In other news, Chinese banks cut their 5-year loan prime rate by 25 basis points, the largest move in five years. The move was designed to support the housing market and drive consumer spending in an economy battling growth and deflationary pressures.Our attention now turns to quarterly wage data. A surprise uptick in wages could elevate calls for another RBA rate hike and help extend the AUD recovery while a softer print allows policy makers scope to leave rates on hold ahead of a possible cut toward the end of the year.
Key Movers
The US dollar is broadly weaker this morning despite US rates holding firm against major counterparts and risk appetite faltering. The euro pushed up through US$1.08 after wage inflation while contracting remained too high for comfort. Wages rose 4.5% in Q4 down from 4.7% in Q3. While contracting still remains elevated and dampened expectations for a European Central Bank rate cut in April. The GBP climbed back above US$1.26, touching highs at US$1.2667 despite markets bringing forward bets for a rate cut with August firming as a likely starting point while the USD slipped below ¥150 against the JPY. The Canadian dollar was the day's biggest loser after softer CPI inflation numbers fell faster than expected in January. The headline rate fell to 2.9% year on year, putting it back within the Bank of Canada's target range, while trimmed mean CPI remains just outside the 2-3% target band at 3.35%. The soft read saw markets bring forward rate cut expectations with a 50/50 chance of an April rate cut now priced in.Our attention now turns to the Australian Wage data, and NZ PPI data ahead of the Federal Open Market Committee meeting minutes early tomorrow morning.
Expected Ranges
- AUD/USD: 0.6450 - 0.6600 ▲
- AUD/EUR: 0.6000 - 0.6100 ▼
- GBP/AUD: 1.9100 - 1.9400 ▲
- AUD/NZD: 1.0580 - 1.0700 ▼
- AUD/CAD: 0.8800 - 0.8900 ▲