AUD buoyed by pull back in US treasury yields
Daily Currency Update
The Australian dollar recovery continued through trade on Tuesday as markets adopted an arm’s length approach to the war between Israel and Hamas, instead choosing to focus on key Fed policy updates and US yield expectations. The initial safe haven push that enveloped markets on opening on Monday has long evaporated allowing the AUD to surge back through US$0.64 on the heels of a broadly softer US dollar. Comments from key Fed officials forced a downturn in US yields with investors paring gains on 2 and 10-year treasury rates amid expectations the Fed may have reached the end of its tightening cycle. In a coordinated approach Fed officials suggested recent tightening in financial conditions may serve to naturally support a weaker inflation narrative removing the need for future Federal Open Market Committee rate hikes. With the USD on the back foot, the AUD pushed toward intraday highs at US$0.6430 with gains underpinned by a stronger-than-anticipated NAB survey into business conditions and confidence and a positive Chinese fiscal stimulus report. Analysis suggests China is preparing to raise its budget deficit for 2023 amid a new round of stimulus measures to help boost economic activity. Reports that over 1 trillion yuan is being earmarked for infrastructure projects helped boost support for the AUD underpin the recovery and rebound off last week's 2023 low.Our attention now turns to US PPI inflation data ahead of tomorrow’s all-important CPI report.
Key Movers
The USD fell through trade on Tuesday as markets pared back US treasury gains amid improved risk sentiment. The early risk-off mood that enveloped markets on Monday as investors responded to the war between Israel and Hamas has all but evaporated and there is no lingering evidence of the initial haven push as equities and risk assets rallied in response to Fed messaging. US yields fell as officials proffered a coordinated and united message, suggesting tighter financial conditions may remove the need for ongoing rate hikes. The Fed is closely watching the trajectory of future inflation and macroeconomic performance in determining whether further central bank tightening is required. The DXY index fell a quarter of a percent with the euro and GBP both advancing and the JPY finding support on moves above ¥149, forcing a correction back toward ¥148.50.Our attention now turns to US PPI inflation data ahead of tomorrow's all-important CPI report, while minutes from the September policy meeting should confirm the Fed expects to keep rates higher for longer. Lingering inflation pressures and signals will likely force the Fed into one more rate hike, again lifting demand for the USD.
Expected Ranges
- AUD/USD: 0.6280 - 0.6480 ▲
- AUD/EUR: 0.5880 - 0.6080 ▼
- GBP/AUD: 1.9000 - 1.9300 ▲
- AUD/NZD: 1.0600 - 1.0700 ▼
- AUD/CAD: 0.8680 - 0.8750 ▲