Home Daily Commentaries Australian dollar extends recovery as US data points to easing inflation pressures

Australian dollar extends recovery as US data points to easing inflation pressures

Wednesday 16 November, 2022

Daily Currency Update

The Australian dollar extended its recovery through trade on Tuesday, consolidating a break above US$0.67 as markets continue to bask in the afterglow of last week's US CPI downside miss. Markets largely ignored weaker Chinese data points, instead directing their focus to changes in government protocols surrounding the management of COVID and optimism surrounding a brighter economic outlook, while key US input data helped fuel expectations for further easing inflation pressures. US PPI inflation data was much lower than anticipated, with core measures growing at their slowest pace in 16 months. With more evidence, price pressures are receding US 10-year rates moved sharply lower while equities and risk assets enjoyed sustained support. Positive risk sentiment helped elevate the AUD beyond resistance at US$0.67/0.6720, marking intraday highs just shy of $US0.68. Our attentions turn now to domestic wage data. The Wage Price Index is tipped to rise near 1%, elevating wage inflation to its highest level in 10 years and adding pressure on the RBA to maintain a steady pace of monetary policy tightening.

Key Movers

An extension in the current risk on narrative helped elevate gains across major currencies while driving the USD lower. A downside miss in US PPI data helped fuel expectations inflation pressures are receding, causing a deeper decline in US 10-year rates while elevating calls for the Fed to temper the pace of future interest rate adjustments. With the USD facing increased selling pressure, the euro and Japanese yen enjoyed modest gains while the GBP continued its steep upward run. The pound has been a primary benefactor of recent US dollar weakness. A stronger-than-anticipated labour market print helped propel the pound through £1.20 overnight before reversing course to close 1% higher on the day at £1.1880. Despite the economy tumbling into recession and increasing signs of rising inflation, chronic job shortages, and a lack of consumer-led activity starting to bite, the GBP has proved remarkably resilient since the budget turmoil. While we anticipate economic headwinds will soon impact GBP value, there are near-term upside opportunities as the markets focus on shifting Fed policy expectations. Our attention today turns to UK CPI inflation data and US retail sales. As higher energy costs fuel inflation, UK price pressures are expected to remain elevated. With the headline, CPI is tipped to print at or near 10.7%; a miss could drive significant price action.

Expected Ranges

  • AUD/USD: 0.6650 - 0.6830 ▲
  • AUD/EUR: 0.6420 - 0.6580 ▲
  • GBP/AUD: 1.7420 - 1.7820 ▲
  • AUD/NZD: 1.0950 - 1.1020 ▼
  • AUD/CAD: 0.8880 - 0.9050 ▲