AUD surges toward US$0.65 as USD faces increased selling pressure
Thursday 27 October, 2022
Daily Currency UpdateThe Australian dollar outperformed major counterparts through trade on Wednesday amid sustained US dollar selling pressure. Price action through the domestic session was largely contained as the AUD struggled to break clear of US$0.64 despite a much stronger-than-anticipated inflation shock. Quarterly CPI inflation reached a 32-year high, with headline inflation up 7.3% and core inflation surging past 6%. Markets were well positioned and prepared for a positive surprise, and price action was restrained. Instead, investors’ attentions remain affixed to expectations for Fed policy. The promise of a pivot in the pace of monetary policy adjustment heaped new pressure on the USD and helped fuel demand for risk across equities and key risk assets. Against a weaker USD and an uptick in the Chinese yuan, the AUD surged through US$0.6450, marking intraday highs at US$0.6512 before edging marginally lower into this morning’s open.
With little of note on today’s domestic docket, our focus remains on the broader USD re-positioning and key US data sets. Third-quarter GDP, goods orders and jobless claims dominate the US ticket. Any sign of a slowdown in activity will likely fuel further dollar weakness and perhaps help the AUD consolidate a break back above US$0.65.
Key MoversThe US dollar came under sustained pressure through trade on Wednesday as a backdrop of improved risk sentiment helped drive demand for key major counterparts. The DXY dollar index fell 1% on the day and is now down 3% this week. With global rates falling amid expectations, the Fed will pivot away from its aggressive pace of monetary policy, tightening the USD has suffered sustained selling pressure. The euro blasted back above parity while the pound has powered through £1.16, and the yen has forced a break back toward ¥146. The US dollar has long been over-valued, and the promise of a correction in the pace of rate hikes has markets adjusting expectations. Our attentions turn now to the Fed and next week’s Federal Open Market Committee (FOMC) policy update. While we anticipate a 75-point hike will still be issued, commentary surrounding the pace of future hikes will be critical in shaping near and medium-term direction. Policy makers will be keen to ensure they straddle a thin line between highlighting the need to slow the pace of adjustment while maintaining a hawkish long-run stance.
Our attention turns to the European Central Bank (ECB). The European Central Bank is expected to raise its benchmark rate by 75 basis points. While this move is fully priced, the promise of future hikes toward a more neutral setting will guide direction. We are keenly attuned to commentary and guidance surrounding the pace of future rate hikes. With US 3rd quarter GDP likely to provide a downward shock, a robust and hawkish ECB policy update could fuel further US dollar weakness.
- AUD/USD: 0.6380 - 0.6550 ▲
- AUD/EUR: 0.6380 - 0.6520 ▲
- GBP/AUD: 1.7780 - 1.8020 ▼
- AUD/NZD: 1.1080 - 1.1220 ▲
- AUD/CAD: 0.8680 - 0.8880 ▲