AUD slides under weight of ongoing inflation woes
Friday 3 March, 2023
Daily Currency UpdateThe AUD failed to hold onto Wednesday's risk on gains, sliding back below US$0.6750 amid an uptick in global rates and stronger than anticipated US data. Higher than-expected European inflation, minimal US jobless claims and an uptick in labour unit costs underpinned the recent shift in narrative and point to stickier inflation pressures through the near term. US 10-year treasury yields broke resistance at 4% lifting the USD higher and sending the AUD toward intraday lows just south of US$0.6710. Amid a backdrop of higher global rate expectations led by the US Federal reserve the AUD will likely remain under pressure. Having failed to extend back beyond US$0.6760 the AUD is now poised to test a close below resistance at US$0.6720. We expect price action through the domestic session to remain relatively subdued, tracking between US$.67 and US$0.6765 ahead of tonight's all-important US ISM services update. Services activity proved a key trigger point through February and an outsized print could well spark another round of elevated price action.
Key MoversThe US dollar continues to find support amid a backdrop of higher global rates. US 10-year treasuries climbed above 4% touching highs just shy of 4.1%. US data sets again pointed to a robust labour markets and sticky price pressures as jobless claims remain a low levels and unit labour costs continue to rise. While leading indicators suggest unemployment will begin to rise through the months ahead unemployment claims continue to sit below expectations. This coupled with an upward revision in labour costs and markets has been forced to fuel the narrative of the higher cost of living pressures. With inflation stubbornly resistant to monetary policy markets continue to adjust expectations for future rate hikes. To this point Euro area CPI printed above expectations, on Thursday writing in an 8.5% increase year on year. The elevated updated all but guarantees the European Central Bank will look to lift rates by 50 basis points later this much and we now anticipate they will maintain a similar pace of adjustment in a push toward a peak deposit rate of 4%. With rate expectations lifted German and European bond yields rose and the euro slipped back below US$1.06, unable to keep pace with the USD. The dollar advanced across the board with the GBP back below US$1.20 shifting nearer US$1.1950 while the yen allowed the USD to test a break above ¥137 before settling nearer ¥136.6. Our attentions turn now to US ISM services activity. Price action has shifted dramatically following the last two ISM updates and another print outside expectations will likely drive volatility into the weekly close.
- AUD/USD: 0.6650 - 0.6830 ▼
- AUD/EUR: 0.6320 - 0.6420 ▲
- GBP/AUD: 1.7620 - 1.7920 ▼
- AUD/NZD: 1.0780 - 1.0880 ▲
- AUD/CAD: 0.9120 - 0.9190 ▲