Home Daily Commentaries AUD emboldened as US dollar breaks key supports

AUD emboldened as US dollar breaks key supports

Daily Currency Update

The Australian dollar strengthened through trade on Thursday as markets extended the positive response to the US CPI report issued Wednesday. Having tracked just below US$0.68 through the early part of the domestic session the AUD trended higher into the local daily close, breaking resistance and pushing toward US$0.6830. With the USD on the back foot, markets showed little impetus to unwind the post CPI downturn, instead consolidating bets the Fed is nearing the end of its rate tightening cycle. With equities and risk assets rallying and bond yields falling the AUD extended back toward mid-June highs, shrugging off weaker than expected China trade data to touch US$0.6893. Having firmly rejected attempts above US$0.69 last month our attentions are now affixed to this critical resistance handle. Reports of improved US China relations, following talks between US Secretary of State Blinken and top Chinese Foreign Policy Official Yi, could help fuel CNY gains and underpin the AUD into the weekly close.

Key Movers

The US dollar remained on the back foot through trade on Thursday, unable to backtrack and retrace losses suffered in the wake of Wednesday’s softer than anticipated CPI report. The US Producer Price Index printed below expectations, adding more fuel to the cooling economic narrative. Final demand rose at its slowest pace since 2020 and points to a broader slowdown in GDP and key inflation markers. US treasury yields fell and the yield curve steepened as markets elevated bets the Fed will be done hiking rates after a final 25 basis point increase at the end of the month. With an increasing expectation the peak in Fed Fund Rates has been reached and for cuts over 2024, the USD and the DXY index broke key supports with the DXY trading below 100. Having broken critical technical resistance levels there is scope to suggest the USD could be preparing for a deeper downward correction. With the USD retreating, major counterparts are finding real momentum with the JPY forcing the dollar under 138, while the GBP has cruised through 1.30 and 1.31, and the euro now comfortable trading above 1.12.

With little of note on the day's macroeconomic docket, attentions are attuned to broader market direction. With key technical levels broken and others at risk, sentiment will play a huge role in shaping direction into the weekly close. Is the market emboldened by the prospect of a peak US interest rate or will something spook investors and force an 11th hour retracement?

Expected Ranges

  • AUD/USD: 0.6750 - 0.6950 ▲
  • AUD/EUR: 0.6050 - 0.6180 ▲
  • GBP/AUD: 1.8980 - 1.9220 ▼
  • AUD/NZD: 1.0720 - 1.0830 ▲
  • AUD/CAD: 0.8950 - 0.9120 ▲