AUD test break below US$0.67 before staging a recovery
Thursday 8 September, 2022
Daily Currency UpdateThe Australian dollar rebounded through trade on Wednesday, bouncing off fresh lows and extending back toward US$0.68. The AUD trended downward on open, giving up supports at US$0.6730 to mark fresh lows at US$0.67. A stable domestic GDP print did little to spur support, and the AUD tracked sideways through the afternoon session and into early overnight trade, bouncing between US$0.6700 and US$0.6730 as investors embraced rising global recession risks. Having eyed a break below US$0.67, the AUD climbed back through US$0.6750 as the US dollar gave up the day’s early gains. Aggressive Fed speak elevated calls for a 75-point hike later this month, and while the narrative remains distinctly hawkish, markets looked to front-load the yield curve, leaving scope for a correction in interest rates once inflation has been curtailed. The AUD recovery has extended into this morning’s open, where it buys US$0.6768. We now turn our attention to RBA governor Lowe. We are keenly attuned to any forward guidance the RBA chief chooses to share in the wake of this week’s policy update. After four consecutive 50-point rate hikes, there is a consensus expectation policy makers will begin to slow the pace of rate hikes and give the economy time to absorb the rapid appreciation. A dovish outlook could pull the AUD back toward recent lows as we look to the European Central Bank (ECB) and Fed for direction overnight.
Key MoversThere was ample content to excite investors overnight as currency markets enjoyed a period of elevated volatility and price action. The USD surged through the early part of the trading day marking new highs and forcing the euro, GBP and JPY to fresh lows. The Japanese yen’s rapid decline continued giving up ¥144 and ¥144.50, stopping just shy of a break above ¥145. The deterioration in yen yields and the Bank of Japan’s policy of yield curve maintenance have forced investors away from the yen despite the recent risk-off narrative. Haven plays have been driven toward the US dollar as Fed rate hikes and the promise of more aggressive monetary policy elevate expectations for a widening yield gap. The euro traded flat before recovering back above parity on the heels of a USD correction, while the GBP bounced off 37-year lows, extending back above £1.15.
We now turn our attention to the ECB’s policy meeting. We anticipate policy makers will respond to the current inflationary pressures and lift rates by three-quarters of a percent, proffering an aggressive policy platform moving forward. Key policy makers have hinted at a desire to curb near-term inflation at the expense of a deeper recession, fearing price pressures will become entrenched. A hawkish ECB could help drive a near-term euro recovery and potentially extend a short-term bounce above parity.
- AUD/USD: 0.6650 - 0.6830 ▲
- AUD/EUR: 0.6720 - 0.6820 ▼
- GBP/AUD: 1.6920 - 1.7180 ▼
- AUD/NZD: 1.1120 - 1.1220 ▼
- AUD/CAD: 0.8820 - 0.8920 ▲