AUD flat as attentions turn to RBA and Federal Reserve
Monday 1 May, 2023
Daily Currency UpdateThe AUD traded flat through trade on Friday as investors pare major bets ahead of RBA, Federal Reserve, and ECB policy updates. Having flirted with a break below U$0.66 the AUD bounced between US$.66 and US 0.6640 for much of the domestic session before faltering overnight and falling to new intraday lows at US$0.6580. The USD pushed higher early after employment cost data printed higher than anticipated, suggesting wage inflation remains well entrenched and too high for comfort. The print all but guarantees another 25-point Fed rate hike this week, however, a surprise downturn in the PCE deflator, a key measure of inflation, did help equities and risk assets rally through the close on hopes broader inflation pressures, particularly across the service sector are beginning to ease, potentially allowing the Fed to pause future policy amendments. The AUD climbed back above US$0.66 leading into the close and buys US$0.6609 on opening this morning.
Our attentions turn now to the RBA policy meeting Tuesday. We expect they will hold off on resuming rate hikes with a view to assessing the boards inflation profile. The accompanying Statement and Fridays in depth SoMP report will be key in determining if and under what conditions policymakers will choose to begin tightening again. With the current policy setting only modestly restrictive, the key question remains. Has the RBA down enough to bring inflation back toward its 3-5% target band? We are keenly watching support at US$0.6580 with further divergence in RBA and Fed policy potentially testing key levels.
Key MoversThere was ample to digest through trade on Friday with the GBP outperforming, the USD holding flat and the Euro and Yen sliding. A downside miss in German CPI and GDP data, coupled with a downturn in Spanish CPI prompted investors to downgrade expectations for broader Euro area growth while paring back headline inflation expectations. With growth already weaker than anticipated in Q4 2022 we expect another sluggish quarterly performance. With inflation pressures easing data pricing for this week’s ECB policy meeting retreated, dampening expectations for another 50-point rate adjustment. The Euro gave up 1.10, falling to intraday lows at 1.0960, before finding support into the weekly close.
The Japanese Yen was the day's worst performer, falling a chunky 1.7% after the Bank of Japan maintained its ultra-easy policy setting and proffered a dovish post-meeting statement. While the Bank of Japan removed its forward guidance on rates, allowing some flexibility in the future the decision to adopt a 12-18 month review of monetary policy afforded the market with little hope of a quick review in policy settings. Governor Ueda did acknowledge policy could be adjusted throughout the review, but in the same breath warned the economy faced greater risks from tightening too quickly than delaying rate adjustments. The Yen tumbled and the USD surged through 136 openings this morning buying 136.16.
Our attentions turn now to the Fed and ECB policy updates. We anticipate both banks will hike interest rates forcing our attention to shift to the accompanying rate statements. A string of softer macro sets could force policymakers to consider pausing the tightening cycle. The Fed’s outlook will prove pivotal in shaping near-term direction across currency markets.
- AUD/USD: 0.6580 - 0.6680 ▼
- AUD/EUR: 0.5980 - 0.6030 ▲
- GBP/AUD: 1.8920 - 1.9180 ▲
- AUD/NZD: 1.0680 - 1.0750 ▼
- AUD/CAD: 0.8880 - 0.9020 ▼