AUD rally falters amid risk-off mood
Daily Currency Update
The Australian dollar retreated through trade on Monday, underperforming as a risk-off mood permeated markets. Having touched intraday highs just south of US$0.6690 on Friday, the AUD tracked steadily toward intraday and overnight lows at US$0.6605, before finding support and settling between US$0.6610 and US$0.6620 leading into this morning’s open.US treasury yields recovered through trade on Monday, clawing back losses suffered in the wake of Fed Chair Jerome Powell’s commentary on Friday, while a risk-off mood helped lift the USD as investors sort haven assets. Having entered overbought territory last week, we were bound for a correction leading into next week's FOMC policy meeting.
Markets remain incredibly sensitive to changes in US monetary policy and any signal from the Fed that affirms expectations the tightening cycle is over could spur another AUD rally. Our attention today turns to the RBA. Markets have priced no chance of a rate hike, instead looking to February as the next opportunity for policymakers to adjust the underlying cash rate.
Policymakers will want to afford the economy time to absorb the November hike and allow Q4 inflation data to be collated and printed to ensure any risk of over-tightening is minimised. We are keenly attuned to the language and rhetoric accompanying today’s policy meeting. A hawkish lilt should help underpin recent AUD gains and lock in a higher trading range through the end of the year.
Key Movers
The US dollar rebounded through trade on Monday, clawing back losses suffered into last week's close as markets adopt a risk-off tone amid a series of hefty moves over the last 2 weeks. US treasury yields rebounded, clawing back much of the Friday sell-off and adding 10-12 points across the curve, helping lift the dollar index.The euro slid back below 1.0850, while the sterling gave up 1.27 and 1.2650. The Japanese yen proved more resilient, finding support on haven plays, while benefiting from the recent correction in global rates. Having forced a break below 147, the JPY gave up intraday highs just south of 147.50, before forcing the dollar back toward 147.25.
The market remains incredibly sensitive to US monetary policy expectations and our attention turns now to US ISM services data and the JOLTS labour market report. With the US economy slowing down and the labour market softening, a print outside expectations could well drive volatility into Wednesday’s open.
Expected Ranges
- AUD/USD: 0.6500 - 0.6700 ▼
- AUD/EUR: 0.6050 - 0.6150 ▼
- GBP/AUD: 1.8900 - 1.9300 ▲
- AUD/NZD: 1.0680 - 1.0820 ▼
- AUD/CAD: 0.8900 - 0.9050 ▼