Aussie dollar continues to trade above 64 US cents
Daily Currency Update
The Australian dollar is slightly stronger this morning when valued against the Greenback. The Australian Dollar (AUD) stages a comeback versus the Greenback (USD) on Friday, and it remains set to finish the week with decent gains. Overall US Dollar weakness, along with investors seeking risk, and dropping US Treasury bond yields, are the reasons behind the buck’s reaction. Hence, the AUD/USD is posting gains of 0.51%, trading around 0.6450 once the pair bounced off the US 64 cent low. On Friday the Australian Services PMI reached a four-month high, registering 50.5 for September, up from 47.8 in August. However, the Manufacturing PMI remained in contraction territory, declining to 48.2 from 49.6 in the previous month. This contraction in the manufacturing sector has tempered bullish sentiment around the Australian Dollar. The AUD/USD pair is currently trading at 0.6434 at the time of writing.Looking ahead this week in Australia and all eyes will be on the Australian Bureau of Statistics on Wednesday when they release the monthly Consumer Price Index (CPI) figures. Consumer prices account for a majority of overall inflation. Inflation is important to currency valuation because rising prices lead the central bank to raise interest rates out of respect for their inflation containment mandate. The August Monthly CPI this week will be the first guide with market expectations it to be back above 5% y/y. Fuel prices are one boost, but the August indicator also has better coverage of services inflation than in July, which we expect to reflect persistence. The full Q3 CPI is out on 25 October ahead of the RBA’s November meeting.
Key Movers
On the data front last week the Federal Reserve (Fed) opted to maintain interest rates within the 5.25-5.50% range. Fed Chairman Jerome Powell, in a subsequent press conference, reiterated the Fed's commitment to achieving a 2% inflation target. Powell also mentioned that the Fed is prepared to raise rates if deemed necessary. The Fed's hawkish stance could exert pressure on the Australian and New Zealand dollar. On Friday the S&P Global Manufacturing PMI improved to 48.9 from 47.9 a month earlier, exceeding estimates but remained in contractionary territory, while the Services PMI dipped to 50.2 from 50.5 in July, below forecasts. The Composite reading, which offers a general view of business activity, was aligned with estimates at 50.1 but trailed August’s 50.2. The weekly US Initial Jobless Claims dropped to 201K, the lowest level since January. Meanwhile, the Philly Fed dropped to -13.5 in September from 12.0 in the previous reading, worse than expected at -0.7. Existing Home Sales fell to 4.04M MoM in August from the previous reading of 4.07M.On Friday the USD/JPY closed out the trading week just south of the 148.50 level after peaking at an intraday high of 148.40. The Bank of Japan (BoJ) remained dovish maintaining its ultra-easy policy stance even in the face of higher-than-expected reported Consumer Price Index (CPI) inflation earlier in the day at 3.2% y/y and the core rate running at 4.3%, well above the 2% target. Inflation in the Japanese economy is on the high end for the time being, but price growth is expected to decline appreciably in the coming months, and the BoJ continues to be far off of a hawkish policy change.
Expected Ranges
- AUD/USD: 0.6340 - 0.6540 ▲
- AUD/EUR: 0.5950 - 0.6150 ▲
- GBP/AUD: 1.8900 - 1.9100 ▼
- AUD/NZD: 1.0700 - 1.0900 ▲
- AUD/CAD: 0.8570 - 0.8770 ▼