Daily Currency Update
The Australian dollar slipped below US$0.6550 Tuesday after the RBA left rates on hold and the USD found support. The AUD tracked sideways through much of the early part of the domestic session, tracking near US$0.6620 before trending toward intraday lows below US$.6550 after the RBA elected to leave rates on hold. While the decision was well forecast investors were hoping the RBA may amend its previous policy statement and offer a more hawkish assessment of near-term policy expectations. Instead, officials doubled down and affirmed their commitment to watching data and the evolving assessment of risks in assessing future policy decisions. There was nothing to suggest another rate hike is on the table and markets saw this as a dovish development driving domestic rates lower and dragging the AUD off recent highs. Having settled near US$0.6540- US$0.6560 our attention now turns to the US labour market data. ADP Private payrolls will provide some insight into Friday's full non-farm payroll print. A sustained softening in labour market conditions should support the view to ease Monetary policy through 2024, affording the AUD support and opening the door for another run toward US$0.67.
Key Movers
Against a backdrop of lower global rates, the USD outperformed, while the euro was the poorest performing Major and the GBP continued to relinquish gains hard won through November. Dovish commentary from European Central Bank (ECB) policy maker Schnabel prompted a correction in European yields and drove the euro back below US$1.08. Schnabel, traditionally a hawk, noted that underlying inflation was falling at a faster rate than anticipated and that another rate hike was “rather unlikely”. While she stopped short on being drawn into when the ECB may cut rates, she did offer some insight into policy makers timelines stating, “We should be careful making statements about something that is going to happen in six months’ time”. The suggestion that the ECB will cut rates within 6 months emboldened investors and as yields fell equities rose. Analysts are now pricing a near 90% chance of a 25-basis point rate cut as early as March with 150 points cut from the official cash rate through next year. With US domestic data mixed our attention now turns to Friday’s non-farm payroll print. Softening labour market conditions will support the view that the Fed need not tighten rates again and monetary policy can begin to ease through next year. Given the markets’ sensitivity to Fed rate guidance, we expect volatility into the end of the week.
Expected Ranges
- AUD/USD: 0.6480 - 0.6680 ▼
- AUD/EUR: 0.6010 - 0.6120 ▼
- GBP/AUD: 1.8900 - 1.9300 ▲
- AUD/NZD: 1.0650 - 1.0750 ▼
- AUD/CAD: 0.8850 - 0.8980 ▼