Home Daily Commentaries AUD dips as inflation pressures ease

AUD dips as inflation pressures ease

Daily Currency Update

The AUD tracked lower through trade on Wednesday, following weaker-than-anticipated inflation data and another 25-point rate hike from the Federal Reserve. Yesterday, Q2 inflation and trimmed mean inflation printed short of market estimates and RBA forecasts allowing the market to pare back expectations for an RBA rate hike next week. Price action across the rates market saw the probability of a rate hike fall from 60% to 25%, propelling the AUD lower. Having opened near US$0.68, the AUD immediately crashed through $US0.6750, marking lows at US$0.6730 before finding support. The AUD tracked sideways into the overnight session before creeping back above US$0.6750 after Federal Reserve Chair, Jerome Powell, affirmed the Fed’s commitment to a meeting-by-meeting approach, leaving the door open for the possibility of another rate hike this year. The Fed’s comments were in line with market expectations and saw the USD track lower. Having clawed its way back to US$0.6780, the AUD opened this morning buying US$0.6757.

Our attentions turn now to the European Central Bank policy meeting. We expect a 25-point hike and clear guidance on policy leading into the September meeting.

Key Movers

Price action across major currencies was largely muted on Wednesday, despite a slew of headline data events and central bank policy updates. The USD DXY index is modestly lower, down 0.3%, after Federal Reserve Chair, Jerome Powell’s, post-policy meeting press conference. As anticipated, the FOMC lifted rates by 25 basis points and the post-meeting statement was almost identical to last month the post-meeting press conference saw Powell proffer a dovish response when quizzed about the probability of a rate hike in September. Powell reiterated the need to be data-dependent, pointing to Jobs, Inflation and activity markers as cornerstones in shaping policy decisions. While the Fed remains steadfast and resolute in its commitment to controlling inflation, it is evident that policymakers are conscious of tightening too far too fast and pushing the economy into recession. US yields were lower with two-year and 10-year rates down 7 and 2.5 basis points respectively. With the USD on the back foot, the Euro pushed back toward 1.11 while the pound rallied through 1.29.

Our attentions turn now to the ECB policy meeting and rate statement. We expect a 25-point rate hike and are keenly attuned to commentary from ECB president Christine Lagarde. Leading indicators suggest past rate hikes are working to control activity and add downward pressure on inflation, but with inflation still well above target we expect the ECB will want to keep alive the option for future rate hikes.

Expected Ranges

  • AUD/USD: 0.6680 - 0.6820 ▼
  • AUD/EUR: 0.6050 - 0.6150 ▼
  • GBP/AUD: 1.8980 - 1.9320 ▲
  • AUD/NZD: 1.0850 - 1.0950 ▼
  • AUD/CAD: 0.8880 - 0.8980 ▼