AUD unsteady as iron ore prices continue to fall
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Daily Currency Update
The Australian dollar is weaker this morning, sliding back below US$0.6550, as iron ore prices continue to fall and investors square positions ahead of a packed macroeconomic agenda. There was little of note on the docket through trade on Monday, allowing investors to assess last week's move and pare positions amid another dip in iron ore and other key commodities.Nickel, steel, lithium and iron ore prices have all tumbled through the first two months of the year, weighing on the AUD and providing little impetus for investors to extend a recovery. Having opened near US$0.6570, the AUD edged lower through the domestic session, before slipping below US$0.6550 and toward intraday lows at US$0.6531 overnight.
Our attentions turn now to a docket crowded with key inflation and manufacturing data. A Japanese CPI report dominates today’s ticket, while Australian inflation data and an RBNZ policy update round out Wednesday ahead of key Euro area inflation and an all-important US PCE deflator report.
The PCE deflator is the Fed’s preferred measure of inflation and will prove critical in shaping near-term rate expectations. After CPI data proved stubbornly sticky, an elevated PCE index could force investors to push back US rate cut expectations again, adding near-term pressure on the AUD.
Key Movers
Price action across majors was mixed through trade on Monday as the AUD and NZD were among the worst performers, while the euro found some traction on the heels of higher European rates. A steady lift in German bund yields and hawkish commentary from ECB president, Christine Lagarde, allowed investors to pare back ECB rate cut expectations, helping lift the single currency off intraday lows near 1.08 toward session highs above 1.0850.While the GBP showed little net change, the USD is stronger against the Japanese yen, as an extension in US treasury yields heaped more pressure on the embattled yen and allowed the USD to close in on a break above 151.
Our attention turns now to Japan's CPI data, where we expect to see a softening in the annual headline and core inflation pressures. If headline CPI drops below 2% it will become increasingly difficult for the Bank of Japan to justify a move away from negative rates and its current bond-buying program, leaving little room for any meaningful JPY recovery.
US durable goods orders and consumer confidence data round out the macro ticket.
Expected Ranges
- AUD/USD: 0.6480 - 0.6600 ▼
- AUD/EUR: 0.5980 - 0.6080 ▼
- GBP/AUD: 1.9250 - 1.9500 ▲
- AUD/NZD: 1.0550 - 1.0650 ▼
- AUD/CAD: 0.8780 - 0.8880 ▼