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AUD largely unchanged despite firming US interest rate expectations

Daily Currency Update

The Australian dollar opened marginally lower this morning having failed to maintain early overnight gains, paring losses into trade on Thursday. Having tracked sideways through much of the domestic session, the AUD jumped through 0.7250 to touch intraday highs at 0.7270 before a sharp correction following the release of the Fed’s latest FOMC meeting minutes. While offering few surprises, the minutes maintained the Fed’s recent hawkish bent, fueling USD gains and forcing the AUD back below 0.7220. With little of note on hand to drive direction and markets seemingly content in ignoring the spiraling Omicron-led spike in COVID-19 infections, our attentions remain affixed to central bank policy expectations and inflation. We expect the AUD will continue to track between 0.7070 and 0.7330 through the coming days as we look to US non-farm payroll data on Friday and US CPI inflation data next Wednesday as key markers for direction as we launch into 2022.

Key Movers

The US dollar index fell through trade on Wednesday before paring losses in the wake of the Fed’s December meeting minutes. Having given up ground across the board, the USD rallied into the daily close, buoyed by expectations the Fed may move faster than previously anticipated. The latest FOMC minutes, while offering few surprises; affirmed the Fed’s hawkish bent and pushed up expectations of a March interest rate hike. Almost 80% of the market now anticipates rates will be lifted leading into Q2, prompting an uptick across US treasury yields and a downturn across risk assets. Having tested a break above 1.36, the GBP has shifted back toward 1.3550 while the EUR gave up 1.1340 and sits only marginally above 1.13 at the time of writing. Central Bank policy guidance and change will continue to drive direction through Q1 for as long as markets are prepared to set aside concerns surrounding the latest spike in COVID-19 numbers and the Pandemic’s ongoing evolution.

Expected Ranges

  • AUD/USD: 0.7070 - 0.7330 ▼
  • AUD/EUR: 0.6320 - 0.6430 ▼
  • GBP/AUD: 1.8580 - 1.8830 ▲
  • AUD/NZD: 1.0580 - 1.0680 ▲
  • AUD/CAD: 0.9170 - 0.9250 ▲