Australian dollar unable to hold above US$0.67
Wednesday 3 May, 2023
Daily Currency UpdateThe Australian dollar is slightly weaker this morning when valued against the US dollar. The Australian dollar reached an overnight high of US$0.6716 consolidating the Reserve Bank of Australia-inspired gains by retreating from a one-week high during early Wednesday in Asia. The Reserve Bank board has lifted the official cash rate from 3.60% to 3.85% in a surprise move just a week out from the federal budget, amid signs households are continuing to feel cost-of-living pressures. The increase in the cash rate – now at its highest level in 11 years – comes a year after the central bank started raising it from the historic low of 0.10% in a bid to tackle inflation. Reserve Bank governor Philip Lowe said inflation, at 7%, was still too high and would take some time to come back down to the bank’s target range of 2-3%.
Looking ahead today we will see the release of the Australia Retail Sales for March, expected to print stagnant growth of 0.2% MoM, before waiting for the US ADP Employment Change for April and the ISM Services PMI for the said month. However, major attention will be given to the Federal Reserve (Fed) announcements and the banking headlines for clear guidance. The Federal Reserve began its own tightening cycle in March 2022 with 475 basis points of tightening so far. The markets are pricing in another 25 basis points with the easing cycle priced to start in November.
Key MoversOvernight the pound (GBP) lost some ground against the US dollar (USD) spurred by risk aversion amidst growing fears that the banking crisis in the United States (US), while the US debt ceiling theme, take the spotlight ahead of the Federal Reserve (Fed) decision. First Republic’s failure is the second largest in US banking history, beaten only by the 2008 demise of Washington Mutual which was also seized by the Federal Deposit Insurance Corporation (FDIC) and sold to JP Morgan. The failure of First Republic follows that of Silicon Valley Bank (SVB) and Signature Bank. The sequence has prompted concerns about a repeat of the contagion that characterised the global banking crisis. The takeover of the troubled lender by JP Morgan suggests the Federal Reserve is much more likely to hike rates at its meeting concluding Wednesday. The US dollar is still supported by high-than-expected PCE inflation data. From a technical perspective, the GBP/USD pair continues to pull back from new year-to-date highs in the US$1.2580s formed on April 28, currently trading at US$1.2477, though the overarching trend remains bullish.
- AUD/USD: 0.6550 - 0.6750 ▼
- AUD/EUR: 0.5950 - 0.6150 ▼
- GBP/AUD: 1.8600 - 1.8800 ▲
- AUD/NZD: 1.0600 - 1.0800 ▲
- AUD/CAD: 0.9000 - 0.9200 ▼