Home Daily Commentaries Aussie dollar continues to hold above 63 US cents

Aussie dollar continues to hold above 63 US cents

Daily Currency Update

The Aussie dollar continues to hold above 63 US cents overnight. The upside attempt featured during the European trading has been unable to break beyond the 0.6340 resistance area, and the pair has pulled back below the 0.6300 level at the time of writing. Elevated US Treasury bond yields assist the US dollar to stage a bounce from over a one-week low, which turns out to be a key factor exerting some pressure on the AUD/USD pair. Overall Aussie dollar is likely to regain the buyer’s confidence should it manage to stay beyond 0.6355. The AUD/USD pair is currently trading at 0.6309.

On the data front yesterday the Reserve Bank of Australia (RBA) release the minutes from their last meeting on October 4th when the RBA hiked rates by 25bps to bring the cash rate to 2.60%.  At the previous four meetings, the RBA hiked rates by 50bps each.  Markets were expecting the same for the October meeting. However, the central bank failed to meet expectations. Although the board said that a slowdown in the pace of hikes was warranted as interest rate hikes lag the economy, it also noted that further rate hikes are likely during the outlook period as the monthly CPI continues to show a broad-based pickup in inflation, rents and utilities. The board noted that 2022 CPI is expected to be around 7.75% during the meeting. The RBA meets again on November 1st.

Key Movers

Overnight British Prime Minister Liz Truss has vowed to lead her party to the next general election but there is speculation she could be moved on long before she gets that chance. Ms. Truss has backtracked on nearly all tax cuts pitched in her disastrous mini-budget. A U-turn she left to her new chancellor Jeremy Hunt to announce. Ms. Truss took over from Boris Johnson just last month after beating Rishi Sunak to the post via an internal party ballot. UK Prime Minister Liz Truss has apologised for her "mistakes" and pledged to lead her Conservative Party to the next election as she fights for her job after a bonfire of her tax-cutting plans. In another cruel blow, one of her ministers has threatened to quit her Cabinet live on air. Armed Forces Minister James Heappey vowed to resign if Ms. Truss fails to meet her commitment to raising defense spending to three percent of GDP by 2030.

US second-tier data overnight was mixed. US industrial production rose 0.4% m/m in September, stronger than expected, and seeing manufacturing capacity utilisation rise to 80%, matching the highest level in nearly two decades. High utilisation is usually associated with stronger inflationary pressure. The NAHB index of homebuilder sentiment fell for the tenth consecutive month, to 38, further signs that higher mortgage rates are a massive brake on housing market activity. The index is a good leading indicator of new home sales, which are apt to plunge over the coming months. The current market pricing suggests a nearly 100% chance for another supersized 75 bps Fed rate hike in November. This in turn continues to act as a tailwind for the US bond yields and the greenback.

Expected Ranges

  • AUD/USD: 0.6200 - 0.6400 ▲
  • AUD/EUR: 0.6300 - 0.6500 ▼
  • GBP/AUD: 1.7700 - 1.7900 ▲
  • AUD/NZD: 1.0950 - 1.1150 ▼
  • AUD/CAD: 0.8500 - 0.8700 ▼