AUD continues to mark new highs as USD weakness extended

Daily Currency Update

The Australian dollar advance continued through trade on Tuesday, consolidating a break above US$0.66 amid a fall in US treasury yields and firming speculation the Fed has reached the end of its tightening cycle. The AUD tracked higher overnight after Fed and Federal Open Market Committee (FOMC) member Christopher Waller helped firm bets rates have peaked. Waller suggested, “policy is currently well positioned to slow the economy and get inflation back to 2%”. While he did stop short of confirming the Fed will end its program of rate hikes, he did hint at the FOMC being able to lower rates if inflation continues to cool. The promise of lower Fed interest rates forced US treasuries lower, with the majority of the correction loaded into the short end of the curve, allowing equities and risk-led assets to extend gains. Having broken above US$0.6650 the AUD marked fresh highs at US$0.6666 before meeting resistance. With US dollar weakness the primary driver behind the move the gains against other majors were muted and our attentions turn now to domestic CPI data, ahead of German inflation numbers and US trade data. With this month’s CPI indicator skewed toward goods, with limited data on services it is unlikely to offer much support in guiding the local inflation narrative. That said a surprise could shape a shift in RBA policy expectations leading into the last meeting for 2023.