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AUD tumbles in face of US economic resilience
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Daily Currency Update
Against a backdrop of support for the USD, the AUD underperformed through trade on Monday, marking fresh year-to-date lows sliding below US$0.6450. Markets adopted a cautious tone to start the week amid fears tensions in the Middle East are set to escalate following targeted drone and missile attacks launched by Iran. While Israel was afforded advanced warning and nearly all projectiles were intercepted, markets are still fearful of an Israeli counterstrike despite Western Allies urging restraint.A risk-off tone elevated demand for the USD pushing the AUD toward US$0.6450. The AUD then extended below the February year-to-date low, touching US$0.6441, after US retail sales surpassed expectations. The hotter-than-anticipated print points to US economic resilience and forced investors to reconsider Fed pricing expectations, driving US yields higher. A stable yuan did afford the AUD some support with PBOC policymakers intervening to set a higher fixing and increase the costs of shorting the CNY against the USD.
With the AUD under pressure, our attentions turn to China activity data, UK labour data and Bank of England Commentary as Governor Bailey hits the wires.
Key Movers
The USD outperformed on Monday amid a risk-off tone and ongoing signs of economic resilience. Growing tensions in the Middle East and elevated Fears Israel will retaliate and strike back against Iran prompted a risk-off mood leading into trade on Monday. At the same time, stronger-than-expected US retail sales drove US treasury yields higher and forced a shift in Fed pricing expectations.US retail sales printed well above expectations while February numbers were revised higher suggesting consumer spending remained strong through Q1 and provides solid momentum leading into Q2 giving the Fed no reason to consider raising rates before the end of Q3. Against a backdrop of higher yields the Japanese yen underperformed. The USD is up over half a per cent and broken through 154, testing levels not seen in 34 years.
Many expected the Bank of Japan and Ministry of Finance would intervene well before these levels, but with losses driven by the outperformance in US treasury yields intervention would be largely ineffective and incredibly costly, thus markets have ignored the jawboning from Japanese officials.
Our attention remains on the Middle East and risk demand while UK labour data, China activity data, commentary from the Bank of England Governor and Canadian CPI data dominate a crowded macroeconomic ticket.
Expected Ranges
- AUD/USD: 0.6400 – 0.6500 ▼
- AUD/EUR: 0.6000 – 0.6100 ▼
- GBP/AUD: 1.9200 – 1.9500 ▲
- AUD/NZD: 1.0850 – 1.0950 ▲
- AUD/CAD: 0.8820 – 0.8930 ▼
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