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AUD upturn falters amid rising global rates

AUD - Australian Dollar

The Australian Dollar opens lower this morning drifting back below 0.78 US cents amid another surge in treasury yields. Local labour market data and unemployment printed well ahead of expectations writing in a 0.5% correction and dip below 6% to 5.8%. The blockbuster print is well ahead of RBA and broader market expectations and affords investors some confidence the recovery is well and truly on track, reducing the possibility interest rates will remain on hold beyond 2023. Having touched highs at 0.7850 the AUD was forced lower overnight in what was a delayed reaction across rates markets to Wednesday’s FOMC print. 10-year rates pushed through 1.7 to 1.75 for the first time in over 20 years as investors adjust expectations for higher rates and higher inflation. Slipping below 0.78 the AUD touched lows at 0.7750 before creeping back toward 0.7760.

The AUD remains vulnerable to swings in the underlying rates narrative and while there is scope the AUD will recapture a push toward 0.80 the currency will likely remain range bound through the near term bouncing between 0.7680 and 0.7850.

Key Movers

The USD managed to recoup half the losses suffered in the wake of the FOMC policy announcement, advancing across the board amid an uptick in 10 year US treasury rates. Price action surged in what was a delayed reaction to the Fed’ policy meeting pushing through 1.7 toward 1.75 as expectations for inflation and higher real rates grows.

Having failed to consolidate a break back above 1.20 the Euro corrected back toward 1.19, marking intraday lows at 1.1907. A divergence in real rates and mounting concerns the suspension of Astra Zeneca from the broader immunisation program will put Europe’s recovery even further behind key counterparts.

The Great British Pound and Japanese Yen, held their ground against the dollar’s advance with Sterling holding onto gains approaching 1.40 and the JPY forcing the dollar back below 109.

Attentions today turn to the Bank of Japan policy update. Having recently reviewed monetary policy we would not be surprised if policy makers amend the current platform in a bid to ensure financial conditions remain accommodative through the medium term. We expect Governor Kuroda will highlight the banks willingness to ease policy settings further if financial conditions continue to tighten.

Expected Ranges

AUD/USD: 0.7680 - 0.7850 ▼

AUD/EUR: 0.6480 - 0.6550 ▲

GBP/AUD: 1.7820 - 1.8180 ▲

AUD/NZD: 1.0770 - 1.0890 ▲

AUD/CAD: 0.9650 - 0.9730 ▲