AUD range bound ahead of key inflation data and Fed policy update
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Daily Currency Update
The Australian dollar shifted back below US$0.66 through trade on Tuesday after stronger than anticipated US jobs data drove US treasury yields higher and helped underpin recent USD gains. Having marked intraday highs at US$0.6624, the AUD fell steadily through offshore trade, tracking toward intraday lows at US$0.6580 before finding support. With little of note on the macroeconomic agenda the market seemed content in nursing moves within recent ranges, positioning itself ahead of today’s all important Q4 CPI update and Fed policy update. Implied monetary policy expectations continues to drive direction and today’s inflation print could prove key in shaping RBA rate expectations. Median estimates have inflation falling to 4.3% year on year, still well above the RBA’s 2-3% target but below their latest projections. Continued deflation will afford policy makers’ scope to maintain the current policy setting as we move into next week's policy update. We expect the AUD will continue to track between US$0.65 and U$0.67 leading into the Fed policy update.Key Movers
Price action across majors was somewhat muted through trade on Tuesday with the DXY index tracking marginally lower on the day, down 0.2%. The euro outperformed, bouncing off lows seen on Monday, after eurozone Q4 GDP data surprised to the upside. While growth was flat, the fact the EU avoided a technical recession helped bolster European treasury yields and lift the euro back toward 1.0850. With the GBP and JPY tracking within a narrow range, our focus shifts to tonight’s FOMC policy update and China PMI data ahead of Thursday’s Bank of England rate statement and Eurozone inflation data. At the risk of sounding like a broken record, implied monetary policy and rate expectations remain the driving force behind near-term direction. This week's policy and inflation updates will prove key in shaping direction. A divergence in market pricing and central bank guidance through the last two months has elevated volatility and any indication of trajectory and timing of central bank rate cuts will prompt activity across currency markets into the weekly close.Expected Ranges
- AUD/USD: 0.6520 - 0.6680 ▼
- AUD/EUR: 0.5980 - 0.6080 ▼
- GBP/AUD: 1.9000 - 1.9300 ▲
- AUD/NZD: 1.0700 - 1.0800 ▼
- AUD/CAD: 0.8800 - 0.8900 ▼