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AUD wobbles as Fed pushes back against dovish market interpretation

Friday 1 December, 2023

Daily Currency Update

The Australian dollar edged lower through trade on Thursday, testing a break back below US$0.66 following commentary from key Federal Reserve Policy makers. US yields rallied across the yield curve, dragging the USD higher and forcing the AUD toward intraday lows at US$0.6574 after Fed members Daly and Williams pushed back on the market’s dovish interpretation of future Fed policy. The AUD remains incredibly sensitive to any content or commentary that impacts US monetary policy expectations, and with San Francisco Fed President Mary Daly suggesting she is not even thinking about rate cuts, expectations the Fed will pare recent hikes through Q4 2024 faltered. The AUD did find support in US macro data sets, as Jobless claims rose as labour conditions deteriorate and the PCE inflation measure fell to its lowest level in two years. Having climbed back above US$0.6610 the AUD opens this morning just above US$0.66 and is stronger against both the GBP and euro. Attentions today turn to Fed President Powell and US manufacturing data for direction into the weekly close.

Key Movers

The US dollar made broad based gains on Thursday, as US treasury yields rose amid hawkish commentary from key Fed policy makers. While PCE inflation data fell to its lowest level in two years and jobless claims rose to their highest level since 2021, the USD found support in commentary from Fed members Daly and Williams. Both pushed back against the markets recent dovish interpretation on fed policy and expectation the Fed is done hiking and looking to cut rates through 2024. San Francisco Fed President Mary Daly said she is not contemplating rate cuts as it is way too early to even call an end to rate hikes, while Williams noted conditions are restrictive but must remain so for some time if inflation is to be brought back to target (2%). With US yields moving higher across the curve the dollar advanced, particularly against the euro and GBP. The euro gave up half a near 0.9% and slid back below 1.09 amid softer European inflation, while sterling fell below 1.27 and 1.2650 before finding support just above 1.26. As the US dollar looks to extend its recovery and trim losses suffered through November, our attentions turn to US Manufacturing data and Commentary from Fed President Jerome Powell for direction into the weekly close.

Expected Ranges

  • AUD/USD: 0.6480 – 0.6680 ▼
  • AUD/EUR: 0.5980 – 0.6120 ▲
  • GBP/AUD: 1.8900 – 1.9200 ▼
  • AUD/NZD: 1.0700 – 1.0800 ▼
  • AUD/CAD: 0.8920 – 0.9020 ▲

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