AUD retreats amid stubbornly hawkish Fed commentary
Friday 18 November, 2022
Daily Currency UpdateThe Australian dollar retreated through trade on Thursday, as markets looked to unwind some of the gains enjoyed through the last seven days amid sustained hawkish commentary from key Fed officials. Since last week’s downside miss in US CPI, the AUD has enjoyed renewed support testing highs just shy of US$0.68. However, a slew of commentary from key central bank policy makers has forced the market to reign in expectations of a Fed pivot. Fed speakers have attempted to water down market excitement about a tempering in the pace of rate hikes following the possible downturn in inflation, suggesting interest rates will need to remain higher for longer if they are to truly be effective in repressing inflation pressures. Notably, some of the more hawkish FOMC members are even forecasting a higher peak Fed Funds Rate, north of 5%. Investors ignored domestic labour market data, despite the suggestion the robust employment print supports a faster and more drawn out RBA tightening cycle. The AUD tracked between US$0.67 and US$0.6750 through the domestic session, before sliding below US$0.67 to mark intraday lows at US$0.6630. Having found support the AUD did recoup early losses and opens this morning buying US$0.6681. Our attentions turn now to Japanese CPI data and commentary from ECB President Christine Lagarde. With little headline news flow on hand we are closely monitoring demand for risk as a key driver into the weekly close.
Key MoversThe US dollar clawed back through trade on Thursday as a host of Fed speakers sought to water down market expectations for a tempering in the pace of interest rate hikes. The BB DXY index closed half a percent higher on the day as Fed officials extoled the virtues of higher interest rates amid sustained inflation, and a robust labour market. Having made modest inroads against most major counterparts the dollar gave back gains amid weaker than anticipated domestic manufacturing data. The Philly fed survey fell sharply, suggesting the manufacturing sector is nearer recession than other sectors of the economy, while housing starts and building permits both retreated in October. In other news the UK Chancellor proffered the latest budget update. A £55billion package of tax increases and spending cuts highlighted what was an austere budget offering. While many of the austerity measures won’t be introduced until after the election in 2024, they offer little incentive to suggest fiscal spending will help revitalise a stagnant UK economy. The budget papers forecast a 1.4% contraction in GDP, while inflation is expected to remain elevated and above 7% through the next 12 months. With markets largely anticipating the dour budget offering, the GBP is little changed slipping below £1.19 but maintaining a relatively narrow handle. While there is scope for the GBP to find and extend short term gains the bleak economic outlook should continue to suppress larger moves, particularly against key major crosses. Our attentions turn now to Japanese CPI data and commentary from ECB President Christine Lagarde. With little headline news flow on hand we are closely monitoring demand for risk as a key driver into the weekly close.
- AUD/USD: 0.6630 - 0.6780 ▼
- AUD/EUR: 0.6420 - 0.6520 ▼
- GBP/AUD: 1.7620 - 1.7820 ▲
- AUD/NZD: 1.0880 - 1.0980 ▼
- AUD/CAD: 0.8850 - 0.9020 ▼