AUD closes in on 5-month high

Daily Currency Update

The Australian dollar edged nearer US$0.68 through trade on Thursday, marking fresh 4-month highs at US$0.6798. Having tracked sideways through much of the local session the AUD climbed overnight, breaking above Wednesday’s high to test US$0.68 amid growing expectations the Federal reserve has met inflation targets and is on track to cut rates through H1 2024. With Q3 GDP growth revised down and leading indicators ahead of the PCE deflater report (the Fed’s preferred measure of inflation) suggesting price pressures have fallen back below 3%, and inside the FOMC’s 2%-3% target band, yields were forced lower. 2-year notes fell back to 4.3% while 10 year yields trade through the post-FOMC meeting low, marking 3.83% before recovering back toward 3.9%. With the USD on the back foot the AUD was among the best performing majors and continues to mark higher highs and higher lows, suggesting momentum remains with buyers leading into the holiday period.

With little on the domestic docket to guide direction into Christmas, our focus turns to Japanese CPI data and the US PCE deflator report. With direction heavily influenced by both Federal Reserve and Bank of Japan policy expectations a surprise read in either metric could spark last minute pre-Christmas volatility. Looking beyond the near-term, reports US president Joe Biden is priming to increase tariffs on Electric Vehicles imported from China could have repercussions for the AUD and may serve to slow the march toward US$0.70 in the New Year.

As an aside the AUD opened the year at US$0.68 and could well end the year at the same level, meaning despite all the turmoil of 2023, the AUD ends the year with zero net change.