Home Daily Commentaries AUD buoyed by softer US data and surge in risk sentiment

AUD buoyed by softer US data and surge in risk sentiment

Daily Currency Update

The Australian dollar outperformed through trade on Friday buoyed by softer US data and a surge in positive risk sentiment. The AUD met selling pressures early after the PBoC set a stronger reference rate in a bid to control and stabilise CNY and CNH values and prevent further fluctuations in USD/CNH rates. The move did little to stave off further weakness with the dollar reaching a new high for the year and forcing the AUD toward intraday lows near US$0.6615 before softer than expected US consumer spending and a further downturn in inflation pressures helped bolster demand for equities and risk assets. The AUD bounced off lows near US$0.66 and climbed back above US$0.6650 to mark intraday highs just south of US$0.6670.
Despite coming under pressure through last week the AUD still outperformed through June, bouncing off year to date lows and closing more than 1% above the monthly close in May. Our attentions turn now to US ISM manufacturing data ahead of Tuesday’s RBA policy update. Softening inflation pressures through May have divided market expectations yet we expect the RBA will lift rates again adding some support to the AUD.

Key Movers

The USD dollar gave up ground against the majority of major counterparts through trade on Friday as US data releases weighted on the currency and a positive risk backdrop helped divert flows back toward risk assets. A softer than anticipated US consumer spending report and a lower inflation print for May helped drive demand for equities and risk assets as analyst expectations for a 2nd consecutive monthly pause in the tightening cycle lifted. Consumer Spending slowed to just 0.1% in May, well down from the 0.6% growth seen through April while the Fed’s preferred measure of inflation the PCE deflation index continued its downward trajectory, up only 0.32% month on month versus 0.4% in April. After enjoying upward momentum leading into Friday’s data update US treasury yields retreated, reversing course and closing flatter on the day. With the USD under pressure, the Euro closed the week back above 1.09, despite a softer than expected Euro Are CPI update. Headline inflation fell below 6% year on year, yet core price pressures remained stubbornly sticky, ensuring bets for further ECB tightening remain in play.
The Yen pushed back against the USD forcing the dollar to highs above 145 and back below 144.50. Finance Minister Suzuki was out again trying to jawbone a higher JPY ahead of further intervention, suggesting the softening Yen was entirely one sided. While ministers and BoJ officials pontificate as to yen values it is unlikely the embattled currency will make any real headway until the Bank of Japan moves off its ultra easy monetary policy platform.
Our attentions turn now to US ISM manufacturing data ahead of the 4th of July Holiday Tuesday.

Expected Ranges

  • AUD/USD: 0.6580 - 0.6730 ▲
  • AUD/EUR: 0.6050 - 0.6150 ▲
  • GBP/AUD: 1.8980 - 1.9280 ▼
  • AUD/NZD: 1.0800 - 1.0900 ▼
  • AUD/CAD: 0.8780 - 0.8880 ▲