AUD break above US$0.72 fails, yet currency remains steady in face of USD rebound
Thursday 2 June, 2022
Daily Currency UpdateThe Australian dollar traded largely sideways through Wednesday, unperturbed by a broadly stronger US dollar. A surprise uptick in Q1 GDP growth had little impact on AUD value and the currency tracked sideways through the domestic session, bouncing between US$0.7160 and US$0.72. The AUD found momentum to mark intraday highs at US$0.7230 on the heels of reports China will invest a further 120 billion in new infrastructure projects in a bid to bolster activity through this period of economic softness. However, it was unable to maintain the uptick following a stronger than anticipated US ISM manufacturing print that forced the AUD back below US$0.72. The key US macroeconomic print came in stronger than anticipated for May, surprising analysts expecting a downturn. Activity rebounded while inflation indicators eased slightly and while the employment index fell, the impact to the labour market and job openings wasn’t enough to sway investors and prevent an extension in rates expectations. US rates surged back toward 3% and investors again began pricing for aggressive Fed policy action. Having fallen back below US$0.72, the AUD reverted back to the day's earlier narrow handle bouncing between US$0.7160 and US$0.7190 into this morning’s open.
Our attentions turn now to US ADP employment data. While traditionally unreliable in forecasting Non-Farm payroll results with jobless claims rising through April ADP data will provide an interesting pre-cursor and marker of overall labour market health
Key MoversThe US is broadly stronger on the heels of a robust ISM manufacturing survey which elevated expectations for rate hikes while forcing investors to adopt a more cautious approach to risk. US 2 and 10-year rates surged overnight up 13 and 9 basis points as global rates again enjoyed significant gains. Against this backdrop, the JPY came under pressure and the USD surged back above ¥130, while the euro failed to keep pace, slipping back toward US$1.0650 and the British pound gave up US$1.25 marking intraday lows at US$1.2475. In contrast, the Canadian dollar held up well, buoyed by a 2% surge in oil prices and the Bank of Canada monetary policy update. As expected, policymakers lifted the underlying cash rate by 50 basis points to 1.5% but the accompanying statement was much more hawkish than analysts anticipated. The bank noted inflation remained elevated and fears price pressures would become entrenched required forceful policy action. The aggressive rhetoric buoyed market expectations for future rate hikes with some market commentators now pricing in a 75 basis point hike. With a 20% chance of a three-quarter percent hike in July now priced in, we are keenly attuned to upcoming inflation data. A stubbornly elevated print will see expectations firm and could help support the CAD in the near term.
- AUD/USD: 0.7080 - 0.7230 ▲
- AUD/EUR: 0.6620 - 0.6790 ▲
- GBP/AUD: 1.7280 - 1.7580 ▼
- AUD/NZD: 1.0980 - 1.1120 ▲
- AUD/CAD: 0.9020 - 0.9120 ▼