Commodity currencies under pressure as Fed soundbites dominate direction

Daily Currency Update

The Australian dollar underperformed through trade on Thursday amid an elevated risk-off environment and whippy price action across treasury, yields, bond markets and currencies. Having tracked sideways through the early hours of the local session, the AUD trended toward and below US$0.63 leading into the overnight session, marking intraday lows at US$0.6295 as markets prepared for Fed Chair Jerome Powell’s all important market update. Conditions were whippy leading into the speech and volatility continued through the address as Powell offered both hawkish and dovish soundbites. Powell pointed to the resilience of economic growth and the labour market as markers supporting further rate hikes, while at the same time acknowledging the significant tightening in financial conditions, suggesting persistent tightening “can have implications for monetary policy”. US treasury yields surged to a 16-year high before paring gains, while the USD followed a similar track, rallying early before correcting lower. As markets pared expectations of another rate hike in November the AUD clawed its way back above US$0.63 and after a brief foray above US$0.6350 opens this morning in much the same position as it started on Thursday.

Our attentions turn now to NZ trade figures, Japan inflation data, UK and Canadian retails sales, a slew of Fed speakers, and of course Israel/Hamas tensions as the primary drivers guiding direction into the weekly close.