AUD well contained as markets sideline major bets
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Daily Currency Update
The AUD traded sideways throughout Tuesday and is unchanged when marked against yesterday’s open. With little headline data outside Canadian CPI numbers available, the AUD bounced between US$0.6650 and US$0.6680 before settling marginally above US$0.6660. After enjoying a series of higher highs and higher lows through the last 2 weeks the AUD rally has stalled on approach to US$0.67. Markets appear reluctant to extend gains ahead of additional signals surrounding expected Fed rate cuts. With commodity prices steady markets seemed content in sidling major bets and our attention now turns to the Federal Open Market Committee meeting minutes this evening for any possible insight into Fed policy change.Key Movers
All eyes were turned to Canada’s CPI print on Tuesday as a marker for global inflationary trends and monetary policy expectations. Price pressures eased more than expected with core inflation down to 2.75% from 2.95% in March. The softer-than-anticipated read allowed markets to firm bets for a rate cut next month. Markets have now priced in a 60% chance of a rate adjustment on June 5th driving the Canadian dollar lower across the board.In the EU Q1 labour costs were up in Q4 2023 casting a shadow of doubt over whether the European Central Bank will cut the rate in June. While these numbers on their own are unlikely to sway policy makers away from loosening monetary policy conditions they could sway the narrative of the future rate adjustments. The euro despite attempting a break back above US$1.0875 traded lower on the day and currently sits marginally above US$1.0850.
With the USD and other majors tracking sideways, our attention now turns to the UK CPI and the Federal Open Market Committee May Meeting Minutes. Bank of England Governor Andrew Bailey, while speaking at the London School of Economics, suggested inflation is expected to move significantly back toward the bank's target of 2% as lower energy prices drive down inflationary pressures. We expect core CPI to fall to 3.6% year on year, down from 4.2%. A soft read will elevate calls for a rate cut next month.
Expected Ranges
- AUD/USD: 0.6600 - 0.6700 ▼
- AUD/EUR: 0.6080 - 0.6180 ▼
- GBP/AUD: 1.8900 - 1.9200 ▲
- AUD/NZD: 1.0880 - 1.1020 ▲
- AUD/CAD: 0.9020 - 0.9120 ▲