AUD tests new highs as hawkish RBA minutes and weaker USD help extend the recovery
Daily Currency Update
The Australian dollar advanced through trade on Tuesday, testing a break above US$0.6750 and marking fresh highs not seen since mid-July. Improved commodity prices and a hawkish RBA December minute helped the AUD consolidate above US$0.67, extending toward US$0.6750 through the domestic session. Yesterday's RBA minutes offered a surprisingly hawkish lilt, opening the door to the prospect of tighter monetary policy conditions through 2024. Markets had largely expected the RBA would maintain a neutral tone, affording little stock in the minutes from the last meeting of the year. Instead, it seems policy makers covered more than was offered in the post meeting statement, bolstering calls for a final rate hike in Q1. With the RBA aiming to bring inflation back toward the middle of its target range between 2% and 3%, interest rates will need to remain higher for longer as concerns domestic inflation drivers remain in play. The AUD then extended gains through overnight trade, buoyed by improved risk sentiment and comments from Fed speakers, where the idea of 2024 rate cuts was supported. While US yields are little changed the curve flattened and the USD fell, allowing the AUD to stretch toward intraday highs at US$0.6773 before settling nearer US$0.6760 leading into this morning’s open. With little of note on the domestic ticket our attentions turn to UK inflation data and Fed commentary as more policy makers hit the wires. US yield performance and market rate expectations remain the key driver influencing direction into the end of the year and commentary from Fed officials will prove critical in shaping the narrative.Key Movers
The USD is weaker this morning, giving up ground against all majors bar the Japanese yen, as commentary from key Fed officials affirm market expectations for 2024 rate cuts. Overnight, Fed speakers suggested the Fed would cut interest rates if inflation continues to track towards target as demand for labour and price pressures normalise. While US yields were little changed, the curve retained a flattening bias with two year notes up 1 basis point and 10 year notes down 1 basis point. The 10-year rate traded to a low of 3.89%, down over 1% from highs near 5% in October. With yields on the backfoot and equities rallying, the USD gave up ground to the euro and GBP, giving up 1.0980 and 1.27, while finding some support against the yen. Having slipped below 142.50 the USD pushed back above 143 against the yen after the Bank of Japan (BoJ) offered little indication it is preparing to move away from its program of negative interest rates. While markets expected the BoJ would maintain the status quo there was scope to suggest they may move earlier in lifting rates out of negative territory. Instead, they left the ultra easy policy program in place and more importantly provide little insight as to when policy may change, suggesting a more certain outlook on growth is needed before a move away from negative rates can be considered.Our attentions turn now to UK CPI data. With headline rates expected to ease we look to core inflation as a key marker driving BoE policy in the new year.
Expected Ranges
- AUD/USD: 0.6680 - 0.6800 ▲
- AUD/EUR: 0.6080 - 0.6180 ▲
- GBP/AUD: 1.8700 - 1.9000 ▼
- AUD/NZD: 1.0750 - 1.0850 ▼
- AUD/CAD: 0.8980 - 0.9050 ▲