Home Daily Commentaries AUD creeps higher on softer US data

AUD creeps higher on softer US data

Daily Currency Update

The Australian dollar edged upward through trade on Monday, finding support amid weaker US PMI data. The US dollar retreated after the composite PMI index fell to 52, down from 53.2 last month and well below consensus expectations, amplifying calls for the Fed to call an end to its rate-tightening cycle. The AUD crept toward US$0.6750, amid rising expectations of widespread China Stimulus, however, gains were pared back as reports pre-politburo meeting notes suggest fiscal Stimulus will be targeted.

We anticipate support for the embattled real estate sector and boosts to consumption, but hopes of widespread fiscal funding have been dashed. China continues to pose headwinds, limiting AUD upside and with supports propped up on expectations, the Fed is nearing the end of its tightening cycle. This week’s Fed and Politburo meetings will prove key in driving near-term direction.

Our attentions turn now to German IFO survey data and US consumer confidence reports ahead of an all-important quarterly CPI update.

Key Movers

Price Action among major currencies was varied on Monday with the USD finding support against the euro and GBP while giving up ground to the yen, NZD and AUD. Softer than anticipated Purchasing Manager Survey reports across the US and Europe elevated concerns surrounding the strength of the global economy.

PMI data showed activity across European manufacturing and service sectors contracted in June as the cumulative impact of persistent rate hikes begins to show. European bonds trended lower, dragging UK gilt yields off an early rally, while US treasuries moved lower early in sympathy before finding support on elevated risk aversion.

With the euro falling to a one-week low, the yen found support, stabilising after a series of losses leading into last week's close. Reports the Bank of Japan (BoJ) is considering large-scale increases to its inflation forecast helped bolster yen demand amid hopes officials will move off outdated yield curve controls. With the BoJ set to meet later this week, we expect little change in policy outlook, with officials set on maintaining a program of support.

Our attentions turn now to German IFO surveys and US consumer confidence ahead of the Fed and ECB policy decisions. We expect both will lift rates by 25 basis points, but Monday’s PMI print suggests past rate hikes are beginning to take effect and may allow European Policy makers the room to move toward a data-dependent backdrop when assessing future rate hikes.

The tone and guidance from the weeks' central bank updates will prove key in driving near-term direction.

Expected Ranges

  • AUD/USD: 0.6680 - 0.6820 ▲
  • AUD/EUR: 0.6020 - 0.6120 ▲
  • GBP/AUD: 1.8880 - 1.9220 ▼
  • AUD/NZD: 1.0800 - 1.0930 ▼
  • AUD/CAD: 0.8820 - 0.8920 ▼