AUD - Australian Dollar
The Australian dollar edged upward overnight after a largely subdued domestic session saw it test lows below 0.7680. The AUD drifted below 0.77 US cents through the afternoon after Asian markets came under pressure following commentary from the People's Bank of China. A PBoC advisor warned excessively low borrowing cost and an abundance of liquidity was fuelling a possible market bubble, forcing risk assets and equities lower as the Hang Seng, S&P 500 and ASX all edged lower. Having touched intraday lows at 0.7670, the AUD found support and surged toward intraday highs at 0.7750 after the IMF upgraded its growth forecast for 2021. The IMF expects the global economy will grow at a faster pace than it first anticipated, amending its year-end growth estimate to 5.5% as vaccines and fiscal stimulus help drive a return to normal. The upgrade helped fuel commodity led and pro-cyclical currencies with the AUD among the best performing major units on the day.
With the AUD firmly range bound, our attentions now turn to Q4 CPI data and commentary from the Federal Reserve for direction through the day ahead. While we don’t anticipate any major surprise on domestic inflation, market estimates sit between 0.7% and 0.9% with core annualised inflation to come in around 1.1%. While an upside surprise might ease pressure on long-run, monetary policy expectations price pressures remain well short of the RBA’s 2-3% band. The Federal Reserve is expected to reiterate its commitment to accommodative monetary policy. Given inflation concerns have eased over recent weeks, we expect little from this month's Fed policy meeting; although, commentary around planned stimulus may offer some colour and steer direction.
While moves across currency markets were largely muted, the US dollar edged marginally lower on the day, down two tenths of a percent when valued against a basket of key counterparts. Equities were broadly flat and bond yields offered little incentive to shift the current narrative. Instead, the IMF upgrade to global growth helped fuel demand for traditional risk linked currencies while the GBP found support in better than anticipated labour market data. Sterling held onto gains above 1.37 after employment data showed the unemployment rate expanded at a slower rate than first anticipated while average earnings increased and the number of people claiming unemployment benefits fell well short of initial estimates. With the UK crippled by this second wave and national lockdown, the surprise upside provides some hope for a H2 rebound. That said, 88,000 more Brits are now out of work and the country passed a grim milestone on Tuesday as the number of COVID-19 related fatalities pushed through 100,000, a stark reminder of just how far we have to go before a return to normal.
0.7640 - 0.7780 ▲AUD/EUR:
0.6330 - 0.6420 ▲GBP/AUD:
1.7580 -1.7720 ▼AUD/NZD:
1.0630 - 1.0750 ▼AUD/CAD:
0.9780 - 0.9890 ▲