AUD slips back below 0.70 as RBA falls short of market expectations
Wednesday 3 August, 2022
Daily Currency UpdateThe Australian dollar retreated through trade on Tuesday, slipping back below 0.70 US cents on the heels of the RBA policy announcement and a broadly stronger US dollar. Having touched highs just shy of 0.7050 the AUD fell following the Reserve Banks policy update. It was widely expected policy makers would elect to lift rates by 50 basis points, and as such investor attentions focused on the accompanying policy statement as a key marker for direction. With major central banks now aggressively tightening financial conditions, in a bid to control inflation, analysts were seeking clear guidance from the RBA; they will continue hiking at pace through the months ahead, a commitment policy maker simply couldn’t make. A key line within the statement suggested future rate adjustments are “not on a pre-set path”. This rattled investors and forced the market to adjust expectations for future 50-point rate hikes. Whether the RBA was hinting at a potential 75-point hike or a more moderate pace of policy change markets assumed a dovish tone and forced the AUD below 0.70 and toward 0.6950. The AUD then tracked lower overnight as the US dollar gathered momentum following a string of hawkish comments from Key Fed officials. Policy makers reminded markets the Fed intends to continue hiking rates aggressively and a lot in the months ahead. Having slipped to touch intraday lows at 0.6918 the AUD opens this morning at this same handle. Our attentions turn now to more Fed commentary and crucial ISM services data. A further fall in activity will add to calls for recession and may heap downward pressure on the USD.
Key MoversThe US dollar outperformed through trade on Tuesday, advancing as markets rushed to adjust policy expectations and treasuries surged higher. Fed speakers regained control of the narrative surrounding US interest rates affirming the FOMC’s commitment to aggressive monetary policy tightening, doubling down on July projections. In the wake of last weeks policy update markets prompted a correction in US treasuries amid an assumption Fed Chair Powell was softening his stance and leaning toward a more dovish and measured program of interest rate hikes. This, perhaps misguided view was dispelled overnight prompting a rapid jump in 2, 5 and 10 year US treasury yields. The dollar followed suit advancing across the board forcing the Euro back below 1.02 Sterling below 1.22 and advancing back above 133 against the Yen.
Our attentions turn now to more fed commentary and critical ISM services data. With signal suggesting another decline in activity toward a two year low a soft print will add mounting pressure on fears the US economy is barreling toward recession and may act as a handbrake on any extended USD rally.
- AUD/USD: 0.6880 - 0.7050 ▲
- AUD/EUR: 0.6730 - 0.6880 ▼
- GBP/AUD: 1.7380 - 1.7720 ▲
- AUD/NZD: 1.0980 - 1.1120 ▼
- AUD/CAD: 0.8870 - 0.9030 ▼