Daily Currency Update
The Australian Dollar offered little to excite investors through trade on Friday, tracking within what has become a familiar range as market attention drifted to what promises to be a week loaded with headline data events. Having edged toward US$0.6350 leading into last week's close the AUD has given up 20 points on open as markets respond to an escalation in the conflict between Israel and Hamas at the weekend. The risk off mood is unlikely to send the AUD spiraling back below US$0.63 but should be enough to cap gain ahead of key headline events this week. With today’s macroeconomic agenda light on detail our focus shifts to Chinese PMI data and the Bank of Japan policy meeting Tuesday for direction. Recent Chinese data points to a stabilising in the economic downturn, and although we are still a long way off traditional growth metrics a moderation in China's economic fears should help add a floor beneath the AUD. Furthermore, the Bank of Japan is expected to do away with its Yield Curve Control program. After adjusting the system in July, it is expected to now scrap it entirely as inflation pressures continue to build. If the BoJ does indeed choose to close the program, we could see a correction in USD/JPY which in turn may help the AUD stave off a consolidated break below current support at US$0.6270/80.
Key Movers
There is plenty to digest on this week’s agenda with the Bank of Japan, Federal Reserve and Bank of England all set to proffer monetary policy updates while key Chinese PMI data and US non-farm payroll numbers round out the macroeconomic ticket. The key question though, will materially change the current narrative and USD momentum. The USD has enjoyed support through September and October on the heels of rising global geopolitical concerns and a surge in treasury yields with long positions building toward levels reflective of a cap in real USD value. While this might suggest further upside will be limited it doesn’t mean an immediate reversal and correction is imminent. We expect the Bank of Japan will announce an end to its Yield Curve Control program this week taking some of the heat out of recent USD/JPY upside and prompting a move back below 150. While this will add some downward pressure on the USD DXY index the divergence in US and European yields and economic outlooks should be enough to offset any USD/JPY downturn with the Euro facing more near-term headwinds. We next turn to the Fed policy meeting Wednesday, and while we expect policy markers will leave rates on hold, citing tightening financial conditions, a robust labour market (affirmed in Friday’s payroll numbers) and stubbornly sticky inflation, led by the service sector, should ensure the prospect of a rate hike in the coming months remains firmly on the table. With the Bank of England expected to leave rates on hold as it battles stubborn inflation pressures and a faltering growth outlook the GBP could eye a break back toward 1.20. All in this week offers ample scope for volatility and we are keenly attuned to each data point and update in shaping medium term forecasts.
Expected Ranges
- AUD/USD: 0.6270 - 0.6360 ▼
- AUD/EUR: 0.5950 - 0.6020 ▼
- GBP/AUD: 1.9000 - 1.9300 ▲
- AUD/NZD: 1.0850 - 1.0950 ▲
- AUD/CAD: 0.8650 - 0.8850 ▲