Home Daily Commentaries Aussie dollar resurgent and USD under pressure as market pushes back against Fed guidance

Aussie dollar resurgent and USD under pressure as market pushes back against Fed guidance

Daily Currency Update

The Australian dollar extended its recovery through trade on Thursday, punching through US$0.68 to mark fresh 4-month highs. Markets have pushed back against Wednesday’s Fed guidance, wherein the dot plot suggested at least two more rate hikes would be issued within this tightening cycle. OIS market pricing shows market participants preparing for just 20 basis points of hiking through the next two meetings as a string of softer data sets point to an economy running out of steam. Overnight headline retail sales rose slightly, but when revision through Q2 are counted annualised consumer spending will have contracted nearly 1% through the quarter. With industrial production contracting and jobless claims rising there is a growing push for the Fed to declare an end to near-term rate hikes. While markets appeared to ignore domestic employment data, the stronger than anticipated report elevated calls for a July rate hike and two full hikes now priced in before October. With US rate expectations falling the AUD surged toward intraday highs at US$0.6890 and opens this morning buying US$0.6879.

Our attentions turn now to US consumer sentiment data and inflation expectations, while the BoJ meeting rounds out an action-packed week of central bank commentary.

Key Movers

There was ample to digest through trade on Thursday as the USD slumped below its pre-FOMC meeting level while the euro lurched higher following a hawkish ECB policy update. Markets continue to push back on Fed guidance of two more rate hikes, instead pricing in just 20 basis points of additional monetary policy tightening through the next two meetings. With the US economy spluttering there are growing calls for the Fed to announce an end to its tightening cycle. In contrast, the ECB lifted rates by 25 basis points overnight. While expected, an overtly hawkish post meeting statement and upward revision of CPI forecast fueled a hawkish market response and drove the euro off intraday lows near 1.08 toward session highs just above 1.0950. With the USD on the back foot, the GBP punched through 1.27 and 1.2750 to mark highs just south of 1.28, while the Japanese yen recovered early losses forcing the USD back toward 140, of highs above 141.50.

Our attentions turn now to US consumer sentiment data and the Bank of Japan’s policy meeting. We anticipate they will maintain an ultra-easy policy setting in stark contrast with other major central banks. Absence of a surprise shift in policy will likely weigh on the yen as the divergent monetary policy gap continues to widen. We are keenly attuned to any language that may hint at a future change in stance. With inflation forecasts due next month the BoJ may be forced into a policy shift.

Expected Ranges

  • AUD/USD: 0.6750 - 0.6920 ▲
  • AUD/EUR: 0.6250 - 0.6320 ▼
  • GBP/AUD: 1.8480 - 1.8720 ▼
  • AUD/NZD: 1.0940 - 1.1080 ▲
  • AUD/CAD: 0.8980 - 0.9150 ▲