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Global rates soar and AUD plunges to 2-year low

Wednesday 15 June, 2022

Daily Currency Update

The rout on commodity currencies and the AUD continued through trade on Tuesday as markets drive up US rate hike expectations while seeking safe haven in a definitive risk-off environment. Having tracked sideways for much of the domestic session the AUD cruised past supports at US$0.6920/30 overnight following reports the Federal Reserve is likely to raise rates by 75 basis points at its meeting later today in a bid to control troubling and persistently elevated inflation numbers. Global rates surged and the USD followed suit forcing the AUD through US$0.69 to mark intraday lows at US$0.6850. After a brief reprieve through the latter half of May, markets have recaptured the risk of narrative that plagued the AUD through March and April. With inflation pressures elevated and underlying cash rates still at record lows central banks have no choice but to rapidly raise interest rates in the hope of controlling prices through H2 and into 2023. Despite hawkish commentary from RBA governor Lowe, wherein it was suggested the RBA would expect to lift rates to 2.5% over the next 6-12 months it wasn’t enough to keep pace with US expectations and stave off AUD downside. Having marked fresh 2-year lows the AUD is increasingly vulnerable to a sustained risk-off move. All eyes remain affixed to price action across global rates and the FOMC policy update tonight.

Key Movers

The US dollar outperformed again through trade on Tuesday as global Rates continue to soar and markets price in a super aggressive Fed policy action. Reports the Fed will look to raise rates beyond previous expectations issuing a 75 basis point hike at its June policy meeting tonight forced investors to readjust expectations and price in 150 basis point hike through the next two meetings. The underlying fed fund rate sits at just 1% and with inflation extending above 8.5% last week markets have come to the sudden realisation the Fed has no choice but to super charge monetary policy normalisation. With rates expected to peak at 4% in Q2 next year the recent re-alignment in market rates pricing represents a remarkable shift in expectations. Just last month signs growth across the US economy may be slowing had prompted analyst to suggest the Fed may pause the tightening cycle in September to re-assess the impact of recent rate hikes. The Dollar Index has surged since Friday’s inflation print and today topped 105.4 a two-year high. The USD remains elevated against the yen while the GBP was the days worst performer. The pound slipped below US$1.20 as a lackluster labour market print added to signals the UK is headed for recession. With messaging from the BoE already mixed expectations the gap between Fed and MPC monetary policy widened as the UK rates failed to keep pace with US treasuries. Having touched lows at US$1.1925 all eyes now turn to the Fed and FOMC policy update for direction through the rest of the week.

Expected Ranges

  • AUD/USD: 0.6780 - 0.7020 ▼
  • AUD/EUR: 0.6550 - 0.6680 ▼
  • GBP/AUD: 1.7320 - 1.7550 ▼
  • AUD/NZD: 1.1020 - 1.1120 ▼
  • AUD/CAD: 0.8850 - 0.8980 ▼