Home Daily Commentaries AUD unsteady ahead of key risk events

AUD unsteady ahead of key risk events

Daily Currency Update

The Australian dollar underperformed Monday, sliding toward US$0.6550 amid renewed concern surrounding the state of the Chinese economy and global growth outlook. Having slipped below US$0.66 on Friday following stronger-than-expected US payroll data, the AUD extended the downward correction giving up three-tenths of a per cent as one of the worst-performing major currencies to start the week.

China inflation data released at the weekend served as a timely reminder of the struggles the Chinese economy continues to face. Disinflationary pressures speak to a lack of domestic demand and lacklustre consumer-led growth, raising fears a sluggish China recovery will continue to drag on the global growth rebound.

Having consolidated a break below US$0.66, the AUD faced added downward pressure amid a weaker Japanese yen. The yen was the day's worst performer as BoJ officials dismissed calls to scrap its negative interest rate framework. The weaker yen helped prop up the USD, dragging on the AUD. Our attention turns now to a string of key risk events with US CPI inflation headlining tonight’s docket ahead of the FOMC policy update on Wednesday.

With the market still incredibly sensitive to any data set that might disrupt the current FOMC narrative, an outsized inflation read could drive an outsized market reaction and prompt volatility leading into the back end of the week.

Key Movers

It has been a relatively quiet start to the week with little headline data on hand to spur direction. Instead, attention was captured by comments from BoJ officials who pushed back against calls to move off the bank's negative interest rate platform. Reports suggest while the BoJ is considering a move away from negative rates, it sees little need to rush into making such a move as wage growth and inflation remain at sustainable levels.

The report quashed market hopes of a December policy change and allowed the USD to lurch back above 146, marking highs above 146.50. With the yen under pressure, US yields rose and the dollar enjoyed some upside with both the euro and GBP trading flat for the day.

Our attention turns now to US CPI inflation data. With last week's robust payroll update, an outsized inflation read will prompt more volatility leading into the Fed policy update. While we expect the Fed will leave rates on hold, a strong read could disrupt market calls for the Fed to call an end to the tightening cycle and begin cutting rates as early as May 2024.

Expected Ranges

  • AUD/USD: 0.6480 - 0.6650 ▼
  • AUD/EUR: 0.6050 - 0.6150 ▼
  • GBP/AUD: 1.8900 - 1.9200 ▲
  • AUD/NZD: 1.0680 - 1.0780 ▼
  • AUD/CAD: 0.8880 - 0.8980 ▼