AUD consolidates gains as USD finds support amid weaker euro
Friday 28 October, 2022
Daily Currency UpdateHaving enjoyed a sustained period of recovery through the last five days the AUD tracked sideways through much of Thursday, as markets take pause to re-assess future central bank policy expectations. After tracking above US$0.65 and marking new 3-week highs at US$0.6520, the AUD met moderate selling pressure leading into the ECB policy update, before finding support and settling marginally above US$0.6450. As anticipated, the ECB lifted rates by 75 basis points, however the accompanying statement adopted a more dovish tone when compared with last months hawkish offering, affirming the emerging market narrative of central bank pivot. There is growing belief major central banks have passed the point of “peak hawkishness” and as such, the pace of future rate hikes will likely be much more data dependent. Global rates fell sharply overnight, and risk assets enjoyed sustained support. While the AUD failed to extend beyond resistance at US$0.6520, there is now scope to suggest a broader and longer run recovery is at hand. Our attentions turn to the Bank of Japan’s policy update. While we expect policy makers will retain the current policy setting, there is a growing possibility BoJ governor Kuroda could signal a possible shift in policy framework as underlying inflation pressures gather momentum. A shift in BoJ policy will likely drive a swift correction in USD/JPY, which could spill over into other major pairs and accelerate an AUD upturn.
Key MoversPrice action across majors was largely muted on Thursday with the exception of the euro, which plunged back below parity following the ECB latest policy update. As expected, the ECB lifted rates by 75 basis points, but the accompanying statement suggest policy makers may adopt a more cautious and measured approach to future interest rate adjustments. The statement affirmed a growing expectation major central banks have now passed the point of “peak hawkishness”. The shift in narrative has prompted a sharp correction in global bond rates, with European bond’s leading the decline overnight.
In other news, US GDP data was a non-event, printing marginally above expectations. The economy grew at an annualised rate of 2.6%, representative of a bounce back after two consecutive quarters of negative growth (a technical recession). The upside surprise was welcomed by investors, however a deeper assessment of underlying consumption and residential investment suggests a slowdown is coming. With the growth trend softening, there is an elevated level of uncertainty as investors remain conscious a recession in 2023 is still highly likely.
Our attentions turn now to the Bank of Japan policy meeting, US labour market data, German GDP and German inflation updates as key markers leading into the weekly close.
- AUD/USD: 0.6380 - 0.6520 ▲
- AUD/EUR: 0.6380 - 0.6520 ▲
- GBP/AUD: 1.7650 - 1.8050 ▲
- AUD/NZD: 1.0980 - 1.1150 ▼
- AUD/CAD: 0.8680 - 0.8830 ▼