AUD bounces back despite mediocre domestic growth outlook
Written by
Daily Currency Update
The Australian dollar outperformed through trade on Wednesday despite a lacklustre local GDP print. Fourth Quarter GDP data printed at just 0.2%, led by a further decline in household consumption. Consumer spending increased just 0.1% in the three months to December and is up just 0.1% for the year. The domestic economy has ground to a halt as households begin to feel the pinch of 13 consecutive rate hikes and if it wasn’t for an influx in migration post Covid the economy would already be in recession. When measured at a per capita level, economic activity contracted through the back half of 2023. Despite the gloomy domestic outlook, markets were not swayed by RBA policy expectations, pricing in a neutral policy setting into a rate cut in November. Having tested intraday lows at US$0.6493, the AUD was one of the primary beneficiaries of USD weakness overnight. The DXY index gave up 0.4% allowing the AUD to push back through US$0.65 and US$0.6550, opening this morning at US$0.6560.Our attentions now turn to the European Central Bank (ECB) policy meeting, China trade data and US jobless claims for direction leading into Friday’s all-important US non-farm payroll print.
Key Movers
The USD retreated through trade on Wednesday, underperforming amid a soft labour market print and confirmation from Federal Reserve Chairman, Jerome Powell that interest rates have reached their peak. Equities rallied and the DXY index fell after ADP payroll data printed largely in line with expectations while new job openings fell and employee retention rose. A deep dive into the data showed the number of employees voluntarily quitting in search of new employment fell to its lowest level post-COVID, suggesting labour conditions are tightening. Macro data sets have begun pointing lower allowing the Fed to focus on inflation and lay the foundations for cutting rates later this year. Fed Chair, Jerome Powell testified in front of Lawmakers on Wednesday, affirming the Fed remains data dependent but expects to dial back policy at some point this year. The USD slipped below 149.50 against the Yen while the EURO pushed back above 1.09, its highest level in over 5 weeks, and the GBP jumped back through 127 to mark intraday highs at 127.50.In other news, the Bank of Canada left rates on hold at 5% and offered little to change expectations for a rate cut in July. The UK budget had few headline items to grab market attention with the only real point of note was an increase in treasury borrowing to fund increased stimulus.
Our attentions turn now to the ECB policy meeting, China trade data and US jobless claims. We expect the ECB will leave rates on hold but will be on the lookout for clues as to the timing and trajectory of monetary policy change.
Expected Ranges
- AUD/USD: 0.6450 - 0.6600 ▲
- AUD/EUR: 0.5980 - 0.6100 ▲
- GBP/AUD: 1.9280 - 1.9520 ▼
- AUD/NZD: 1.0650 - 1.0750 ▲
- AUD/CAD: 0.8820 - 0.8920 ▲