Home Daily Commentaries AUD boosted by improved risk appetite and growing likelihood of RBA hike

AUD boosted by improved risk appetite and growing likelihood of RBA hike

Tuesday 31 October, 2023

Daily Currency Update

The Australian dollar climbed through trade on Monday amid improved risk sentiment and rising expectations for a November RBA rate hike. Markets have adopted an optimistic view when assessing developments in the Middle East. Despite Israel initiating its ground invasion and pushing into Gaza at the weekend, its approach appears more tactical and not the forceful, destructive, retaliation markets first feared.

The tempered push into Gaza helped elevate risk appetite with positive risk sentiment driving direction and helping lift the AUD back above US$0.6350. Having climbed off lows near US$0.6310, the AUD found added support in stronger-than-anticipated domestic retail sales data. The robust read affords the RBA more scope to consider another interest rate hike as underlying inflation proves stubbornly sticky.

Amid an uptick in domestic rates, the AUD marked intraday highs at US$0.6370, as attention turns now to the Bank of Japan (BoJ) and key Chinese PMI data for direction through trade on Tuesday.

Key Movers

US treasuries advanced through trade on Monday but failed to drag the USD higher as markets instead placed greater stock in improved risk sentiment. Markets appear jittery ahead of what promises to be a blockbuster week filled with a critical Fed policy announcement, BoJ meeting and US labour market data. Against a backdrop of higher rates, the USD underperformed with the DXY index sliding 0.4%, amid a stronger GBP and euro.

With the Fed meeting on Wednesday and the US non-farm payroll looming on Friday, our attention first turns to the BoJ policy meeting. Markets anticipate policymakers will finally announce an end to the yield curve control program amid rising inflation and a weaker yen. Having refrained from intervening on moves above 150 last week, a muted BoJ response today will most certainly send the yen tumbling and require costly and timely intervention.

Either way, we can expect volatility leading into and out of this month's BoJ policy meeting.

Expected Ranges

  • AUD/USD: 0.6270 - 0.6420 ▲
  • AUD/EUR: 0.5950 - 0.6050 ▲
  • GBP/AUD: 1.9000 - 1.9300 ▼
  • AUD/NZD: 1.0850 - 1.0950 ▲
  • AUD/CAD: 0.8750 - 0.8850 ▲