Home Daily Commentaries AUD lifted by hopes a deal to raise debt ceiling is close

AUD lifted by hopes a deal to raise debt ceiling is close

Daily Currency Update

The AUD remains firmly entrenched within a narrow trading handle, bouncing between US$0.6630 and US$0.6680 through trade on Wednesday. Having tracked sideways through the domestic session, the AUD pitched downward marking intraday lows just below US$0.6630 before improved risk sentiment helped to fuel a recovery through the rest of the overnight session and into the daily close. Risk appetite lifted as hopes that a deal to raise the US debt ceiling were bolstered, following talks between President Biden and House Speaker McCarthy. With both sides hopeful a deal can be struck, equities and commodity currencies found support and the AUD crept toward intraday highs above US$0.6670. While trending higher, gains were capped by the weaker Chinese Yuan. Concerns surrounding a slowdown in domestic Chinese growth have driven the Yuan lower this last week, with the USD punching through 7 vs the CNY for the first time this year. With Yuan weakness spilling over into the AUD, our attentions turn now to domestic labour market data. We expect another strong print unemployment to remain at 3.5%. After yesterday’s Wage data showed wage inflation reaching a fresh decade high another robust read may prompt the RBA to issue another rate hike in June, lifting the underlying interest rate above 4%.

Key Movers

Higher risk sentiment supported commodity currencies through trade on Wednesday while the Euro, GBP and Yen failed to keep pace and the USD traded sideways when measured against the broader basket of major counterparts. Hopes a deal can be struck to raise the US debt ceiling bolstered demand for risk, elevating equities treasuries and commodity currencies, while eased fears for the US bank sector helped underpin gains. Western Alliance Bank reported another uptick in deposits, with total deposits up US$1.8 billion since the end of Q1. The news helped drive gains in the KBW banking index and fuel a broader S&P 500 advance. The Euro tracked below 1.0850 while the GBP trended lower before finding support in comments from Bank of England Governor Bailey. Bailey reiterated the Monetary Policy Committee (MPC) Board's commitment to further tightening, suggesting the risks to inflation remain skewed to the upside. With persistent inflation expectations driving up near-term rates, the Yen underperformed allowing the USD to surge through 137 and 137.50 to mark intraday highs at 137.75.

Our attentions turn now US jobless claims, home sales data and a Philly Fed survey on business sentiment.

Expected Ranges

  • AUD/USD: 0.6580 - 0.6750 ▲
  • AUD/EUR: 0.6080 - 0.6180 ▲
  • GBP/AUD: 1.8620 - 1.8880 ▼
  • AUD/NZD: 1.0580 - 1.0720 ▼
  • AUD/CAD: 0.8920 - 0.9020 ▼