Daily Currency Update
The Australian dollar edged lower through trade on Tuesday, unable to hold onto gains above 0.67 ahead of key inflation data. The USD extended its strong start to the year forcing the AUD off intraday highs near US$0.6730 below US$0.67 and toward intraday lows just south of US$0.6680. With the USD on the front foot the AUD has suffered a modest correction through the start of 2024 as investors continue to wrestle with the timing and trajectory of Fed monetary policy. Having touched highs just short of US$0.69 through late December the AUD has been forced to give up ground through the last two weeks as markets pare back expectations for a March rate hike. Our attentions turn now to domestic and US inflation data. With the RBA still expected to lift rates once more through Q1 today’s local inflation update could prove pivotal in shaping expectations. A miss to the downside will afford the RBA scope in maintaining the current policy setting while ongoing stickiness and sustained price pressures will likely drive-up calls for a rate hike in March. With relative monetary policy expectations now key to direction domestic and US inflation performance should drive volatility into the weekly close.
Key Movers
The US dollar continued its strong start to 2024, advancing against the Euro, Yen and commodity currencies ahead of key inflation data. Thursday’s consumer price inflation report for December headlines the docket this week and will be pivotal in shaping near term Fed expectations and dollar direction. The USD index hit 5-month lows through December on the back of elevated calls for Fed officials to bring forward rate cuts so as to avoid a heavy downturn in economic activity. A rebound in macro data sets through early January has forced investors to reconsider USD shorts allowing the dollar to recoup losses and enjoy its strongest start to a calendar year since 2011. With the market still trying to find its feet in terms of the timing of Fed rate cuts inflation data takes on greater importance. If the data continues to show a moderation in inflation pressures expectations for a March rate cut should find support, while a stronger read likely forces investors to pare expectations and instead price for a cut nearer June adding more support to the USD. With the Euro trading below 1.0950 and Sterling slipping below 1.27 we look to commentary from Bank of England Governor Bailey for direction leading into Thursday’s inflation report.
Expected Ranges
- AUD/USD: 0.6650 - 0.6750 ▼
- AUD/EUR: 0.6070 - 0.6150 ▼
- GBP/AUD: 1.8900 - 1.9100 ▲
- AUD/NZD: 1.0680 - 1.0820 ▼
- AUD/CAD: 0.8920 - 0.9020 ▲