Home Daily Commentaries Aussie dollar continues to trade below 65 US cents

Aussie dollar continues to trade below 65 US cents

Daily Currency Update

The Australian dollar is slightly weaker this morning when valued against the Greenback. The Australian dollar continues to fend off a stronger US dollar from sending it to the cellar as markets contemplate central bank posturing, debt market gyrations and the outlook for global growth.

The AUD/USD pair traded back and forth on Friday near the crucial resistance of 64 US cents. Last week the Reserve Bank of Australia (RBA) extended its interest rates pause for a third consecutive month as it assesses whether the sharpest increase in borrowing costs in three decades has done enough to slay inflation. The RBA left its cash rate on hold at 4.1%, the highest since mid-2012, at its September board meeting on Tuesday. The decision, the last under the leadership of outgoing governor Philip Lowe, was widely expected.

About the labour market outlook, RBA Governor Philip Lowe cited that the Unemployment Rate can sustain near 40-year lows and wage growth is strong. The challenges for commodity prices have been compounded by the prospect of slowing economic growth in many pockets of the world, in particular, China. Australia’s inflation rate, though, remains higher than in many similarly rich nations and also far outside the RBA’s preferred target band of 2-3% which it expects won’t be reached until 2025.

On the local data this week and on Tuesday we will see the release of the Westpac Consumer Sentiment a survey of about 1,200 consumers that asks respondents to rate the relative level of past and future economic conditions, employment, and climate for major purchases. We will also see the release of the National Australia Bank (NAB) Business Confidence Survey of about 350 businesses which asks respondents to rate the relative level of current business conditions.

On Thursday all eyes will be on the release of the Employment data from the Australian Bureau of Statistics which will measure the percentage of the total workforce that is unemployed and actively seeking employment during the previous month. This month we forecast the unemployment rate to remain steady at 3.7% while adding approximately 25.9k jobs.

Key Movers

The US dollar remains robust, buoyed by the consistent flow of positive economic data concerning the state of the US economy. Last week, the labour data released on Thursday from the United States showed that as of September 1, US Initial Jobless Claims declined to 216K, indicating a decrease from the previous figure of 229K. This figure was lower than the expected rise of 234K.

Furthermore, in the second quarter (Q2), US Unit Labor Costs rose to 2.2%, up from the previous 1.6%, contrary to expectations of it remaining consistent. The US Federal Reserve (Fed) is anticipated to sustain elevated interest rates over a prolonged period. Furthermore, there is an expectation that the Fed will enact a 25 basis point (bps) interest rate hike by the end of the year 2023.

In the UK on Friday, the GBP extended its free fall for four straight days versus the US dollar due to high US bond yields underpinning the Greenback. The GBP/USD is trading at 1.2458 after hitting a daily high of 1.2514, as sellers set their sights on technical support to prolong their profits.

Last week, Governor Andrew Bailey said The Bank of England is "much nearer" to ending its run of interest rate increases but borrowing costs might still have further to rise because of stubborn inflation pressures. The BoE has raised rates at its last 14 meetings as it grappled with the highest inflation among the world's big, rich economies. It is expected to raise borrowing costs again later this month, taking the bank rate to 5.5%.

In recent weeks, senior officials at the BoE have stressed that even if rates are close to peaking, they are unlikely to fall quickly, as the central bank seeks to ensure inflationary pressures are squeezed out of the economy.

Expected Ranges

  • AUD/USD: 0.6270 - 0.6470 ▼
  • AUD/EUR: 0.5850 - 0.6050 ▲
  • GBP/AUD: 1.9350 - 1.9550 ▼
  • AUD/NZD: 1.0700 - 1.0900 ▲
  • AUD/CAD: 0.8550 - 0.8750 ▼