AUD steadies as focus turns to domestic labour market update
Thursday 15 September, 2022
Daily Currency UpdateThe Australian dollar tracked sideways through trade on Wednesday as price action across major currencies was largely muted when valued against Tuesday’s post-CPI correction. Having found support on moves approaching US$0.67, the AUD bounced between US$0.6705 and US$0.6750, unable to extend a short run upturn into a more meaningful recovery. Investors' focus remains squarely affixed to US rate expectations, and the majority of analysts are pricing a 75-basis point hike at next week’s Federal Open Market Committee (FOMC) policy meeting. That said, momentum is building behind calls for a full 100-point rate adjustment. Twenty-Five percent of market participants are now pricing in a 1% rate adjustment while upgrading expectations for the peak underlying cash rate, prompting a deeper inversion in the US 2y10y year yield curve and fueling added near-term USD support. We anticipate the AUD will continue to face an extended period of downward pressure as risk aversion, the deterioration in the global growth outlook, a weaker Chinese Yuan and a decline across key commodity prices all weigh on the currency. With supports at US$0.6680/67 still intact, we are eyeing a consolidated break below this handle as a possible marker the AUD is poised to move another leg lower. We now turn our attention to domestic employment data. A strong read indicating sustained labour market tightness will elevate calls for another 50-point RBA rate adjustment and could lend some support to the AUD.
Key MoversPrice action across majors was largely muted through trade on Wednesday with the exception of the Japanese yen. The yen pushed back against the recent USD upside and a market push toward ¥145 as key policy makers stepped up calls for FX intervention. Reports the Bank of Japan would act as an agent for the Ministry of Finance should it wish to intervene surfaced late yesterday as officials called key Japanese banks to check underlying FX rates, a move often used to signal imminent intervention. The yen advanced 1% on the day pushing the USD back below ¥143.50. While there has been no intervention yet markets are now acknowledging messaging from key officials as it is clear tolerance for further wholesale declines in the value of the yen is now limited.
In other news the euro continues to trade below parity while the GBP offered little and continues to trade around US$1.15. Markets largely ignored the UK’s CPI inflation update despite a surprise contraction in headline CPI down from 10% to 9.9%. The decline in headline CPI was offset by a stronger than anticipated increase in core CPI. Inflation remains well above the Bank of England’s 2% target and the latest print does little to amend market expectations for a 75-point MPC rate hike next week.
- AUD/USD: 0.6680 - 0.6860 ▲
- AUD/EUR: 0.6710 - 0.6820 ▼
- GBP/AUD: 1.6980 - 1.7220 ▲
- AUD/NZD: 1.1180 - 1.1280 ▲
- AUD/CAD: 0.8820 - 0.8920 ▲