Daily Currency Update
The Australian dollar slipped below US$0.66 through trade on Tuesday amid an uptick in global rates and a surge in US treasury yields. Yields began moving higher throughout Asian trade as market nerves began to climb ahead of key commentary from Fed official and Governor Christopher Waller. The AUD gave up US$0.6650 early and continued moving lower, extending losses after Waller pushed back against market pricing for rate cuts. Waller proffered a cautious tone, suggesting there is no rush to cut rates. Markets have currently priced in nearly 6 Fed rate cuts into the end of the year whereas the Fed median dot plot sees officials pricing in just 3. US treasury yields surged and the AUD was forced below US$0.66 marking intraday lows at US$0.6577 before finding support. With little of note on today’s domestic docket implied monetary policy will continue to drive direction. AUD performance through the coming weeks will be heavily influenced by US rate expectations. If the market continues to price in near 6 rate hikes the AUD should remain we bid above US$0.65, while moves toward Fed expectations will bolster the US dollar recovery and could see the AUD trace back toward US$0.64.
Key Movers
The US Dollar is broadly stronger this morning as US yields played catch up to the moves seen across Europe on Monday. With European Central Bank and Fed speakers pushing back against market expectations for rate cuts global rates have moved higher with US 2 and 10-year rates leading gains through Tuesday up 10 and 14 basis points respectively. Comments from Fed Governor Waller overnight highlighted the gap in market pricing and central bank expectations forcing investors to pare back rate cut estimates lifting Fed Funds rate expectations from year end to 3.75%, up from 3.65% on Friday. The move in yields helped the DXY dollar index surge near 1% with the greenback up against all major counterparts. The euro is down 0.9%, slipping below US$1.09, while the GBP gave up US$1.2650 and the yen allowed the USD to trade above ¥147. Notably, the Canadian dollar was among the best performers down only fourth-tenths of a per cent after a CPI inflation print showed annual inflation edged higher, with core CPI up 0.3% on forecasts forcing analysts to push back Bank of China rate cut expectations. Our attention now turns to the China GDP and industrial production numbers ahead of UK CPI data and US core retail sales.
Expected Ranges
- AUD/USD: 0.6500 - 0.6700 ▼
- AUD/EUR: 0.6000 - 0.6100 ▼
- GBP/AUD: 1.9000 - 1.9300 ▲
- AUD/NZD: 1.0680 - 1.0820 ▼
- AUD/CAD: 0.8850 - 0.8950 ▼