AUD steady ahead of action packed week
Daily Currency Update
The Australian dollar traded higher through trade on Monday in what was otherwise a relatively quiet day across currency markets. With much of the country enjoying an extended weekend observance of the King’s Birthday, the AUD tracked sideways through the domestic session bouncing between US$0.6730 and US$0.6750, before jumping through resistance to mark intraday highs at US$0.6775.There appears to be little catalyst behind the move outside a downward correction in US median inflation expectations. A New York Fed consumer survey showed expectations for inflation fell to their lowest level in over two years. With markets already positioning for a pause in the Fed’s tightening cycle this week, the AUD capitalised before trading back toward US$0.6750.
Our attention now turns to US CPI data. The print will prove pivotal in shaping FOMC expectations, with a read outside the anticipated 0.3%-0.4% month-on-month increase likely to cause significant price action. A softening in inflation pressure could help drive the AUD through US$0.68, while stubborn price pressures will elevate calls for another rate hike and likely force the AUD back below US$0.67.
Key Movers
Price action through Monday was somewhat muted as investors looked to pause, take stock and reassess positions ahead of what promises to be an action-packed week. With only second-tier macroeconomic data on hand to steer direction, most majors tracked within a narrow trading range while the GBP underperformed.Comments from Bank of England and Monetary Policy Committee member, Catherine Mann, elevated fears policymakers will be forced to continue raising interest rates into restrictive territory as they fight to control inflation. Mann said she was still concerned about persistent pressure on inflation, particularly sticky core inflation. While UK yields rose, the GBP slid off intraday highs near 1.26, testing a break below 1.25.
With the UK economy showing significant signs of stress and recession, ongoing rate hikes to curb inflation will only act to restrict growth further, weighing on long-term Sterling expectations. With the EUR and JPY trading flat on the day, our attention turns to UK labour market data and US CPI data. Any print outside median estimates will likely prompt a shift in market positioning ahead of the FOMC policy update Thursday.
With much of the market expecting policymakers will pause the tightening cycle, a surprise uptick in inflation pressures could drive a last-minute run to price in yet another 25-point hike.
Expected Ranges
- AUD/USD: 0.6650 - 0.6830 ▲
- AUD/EUR: 0.6230 - 0.6320 ▲
- GBP/AUD: 1.8380 - 1.8620 ▼
- AUD/NZD: 1.0980 - 1.1080 ▲
- AUD/CAD: 0.8950 - 0.9050 ▲