Home Daily Commentaries AUD boosted as US inflation pressures drive shift in US rate expectations

AUD boosted as US inflation pressures drive shift in US rate expectations

Daily Currency Update

The Australian dollar advanced through trade on Thursday, consolidating a break above US$0.69 as inflation pressures in the US continue to ease. Having tracked sideways through the domestic session, maintaining a narrow 20-point handle, the AUD lurched above US$0.6950, marking intraday highs north of US$0.6980. The much-anticipated US inflation update largely met market expectations, fueling calls for a correction in the pace of ongoing rate hikes. Confirmation price pressures are abating has afforded markets the catalyst to begin pricing at a more measured pace of rate adjustment. The correction in the US rate outlook helped propel the AUD beyond resistance at US$0.6950 and opened the door for a break above US$0.70. Further extension will likely hinge on sustained commentary from key Fed officials and a sustained recovery in global growth optimism. Our attentions turn now to US consumer sentiment and earning season as key markers of sustained US growth and the ongoing re-opening in China.

Key Movers

Overnight price action hinged on US inflation data and the subsequent reaction across the US rates market. US CPI inflation data showed price pressures continue to ease in the States, elevating calls for fed policy makers to slow the pace of rate hikes. We saw a sharp move in Fed fund pricing expectations, with most analysts now anticipating a 25-point rate hike in February, an assumption supported by commentary from some key Fed officials. The DXY dollar index gave up 0.7% in the wake of the data release, as most other majors enjoyed an upswing against the dollar. The Japanese yen was the day stand out, forcing the dollar back below 130 as rates action normalises. The Bank of Japan is considering adjusting its bond purchases amid tweaks to its Yield Curve Control program. Outside the yen, the euro climbed toward US$1.0850 while the GBP clawed back above US$1.22.
Our attentions turn now to US earnings data and growth signals. As inflation pressures continue to ease, the growth outlook will be critical in shaping Fed policy through H2. The likelihood of a recession remains very real, and while the USD remains under pressure through the near term, a global recession should afford the world’s base currency some support as we move through 2023.

Expected Ranges

  • AUD/USD: 0.6850 - 0.7020 ▲
  • AUD/EUR: 0.6380 - 0.6480 ▲
  • GBP/AUD: 1.7480 - 1.7620 ▼
  • AUD/NZD: 1.0850 - 1.0950 ▲
  • AUD/CAD: 0.9250 - 0.9350 ▲