Attentions on the RBA as likelihood for a rate hike firms
Daily Currency Update
The Australian dollar retreated through trade on Monday, sliding back below US$0.65, as markets took stock of Friday’s rally and attention turned to today’s all-important RBA policy update.After a blockbuster week last week, investors appeared content in taking stock Monday, assessing conditions and absorbing profits as the dust settles. Global bond yields pushed higher paring some of last week's losses, while equities traded flat for the day. Having touched highs just above US$0.6520, the AUD slipped back below US$0.65 overnight as attention turns to the RBA policy update.
Most analysts and economists anticipate the RBA will raise rates today, with a 70% chance of a 25-basis point rate hike priced in. With the RBA lagging behind other major central banks, the lifting of the official cash rate to 4.35% still sees it sit well behind the likes of the RBNZ, Bank of England and Federal Reserve. With most central banks talking about ending their tightening cycle, an RBA rate hike and the prospect of another through Q1 next year should afford the AUD some support as the yield gap closes.
We are keenly attuned to this afternoon’s rate announcement as the lone headline item on this week's agenda with direction post-RBA stemming from general market sentiment. If investors maintain their conviction in calling an end to Federal Reserve rate hikes the door is open for the AUD to consolidate a move above US$0.65.
Key Movers
After the turmoil that enveloped financial markets last week, price action through trade on Monday was considerably calmer as investors took the opportunity to take stock and assess last week's moves. US yields recovered losses, while equities traded flat for the day, allowing the USD to find support as debate rages as to whether the Fed has indeed reached the end of its tightening cycle.Commentary from Bank Of Japan (BoJ) Governor Ueda helped underpin the risk-on mood as he affirmed the bank's commitment to negative rates, suggesting there was a near-zero chance policymakers would lift rates before year-end. The comments come after last week's adjustment in yield curve controls and alleviate emerging concerns a shift in BoJ policy could drive a risk-off run.
With German factory orders rising in September, the euro is trading near its Friday close, while the GBP found support near similar levels trading at 1.0735 and 1.2375 respectively.
Our attention turns now to the RBA policy announcement and medium-term Fed rate expectations. If markets maintain their conviction in pricing an end to the Fed tightening cycle, the window is open for markets to close the door on USD exceptionalism.
Expected Ranges
- AUD/USD: 0.6350 - 0.6550 ▼
- AUD/EUR: 0.5950 - 0.6100 ▼
- GBP/AUD: 1.8900 - 1.9200 ▲
- AUD/NZD: 1.0780 - 1.0920 ▲
- AUD/CAD: 0.8780 - 0.8920 ▼