AUD holds extends back above US$0.65 as pressure mounts on USD exceptionalism
Daily Currency Update
The Australian dollar edged higher through trade on Friday pushing back above US$0.65 and toward the Wednesday night high just short of US$0.6530 amid an improvement in the underlying risk narrative. US equities and risk assets advanced as market expectations for a retracement in Fed and FOMC rate hikes through the second half of 2024 grow. Falling global bond yields and rising expectations for rate cuts have forced the USD to give up year to date highs won in October opening the door for the AUD to push lows below US$0.63 and rally back above US$0.65. the question now can the recovery be sustained and extended? While the global growth outlook remains unclear and China’s recovery uncertain the AUD could well enjoy an extended recovery toward US0.66 through December if markets continue to price an end to the Fed’s tightening cycle. USD exceptionalism has faltered through the first 2 weeks of November as macroeconomic data sets led by a softening in the labour market allow investors to focus on when policy makers will cut rates. With the RBA lifting rates in November, there is scope to suggest the RBA still has room to move in tightening financial conditions. This could create a knock on effect and leave the RBA as one of the last to begin cutting rates and perhaps affording the AUD a yield advantage sorely missed through the last 12 months. With little of note on today’s macro ticket direction will continue to derive from market sentiment and Fed policy expectations. Our attention turns to Tuesday's FOMC meeting minutes as a conduit offering key insights into future Fed policy expectations.Key Movers
The US dollar was among the weaker currencies through trade on Friday, giving up ground to all 10 major counterparts amid an improved risk tone. The dollar index gave up 0.5% as markets priced out a more aggressive path of Fed rate cuts through 2024. With inflation tracking toward target and US macroeconomic data sets suggesting the robust tightening cycle employed by the FOMC is working to control future price pressures analysts have begun pricing an easing in policy conditions through next year. Financial conditions have tightened naturally easing the burden on the Fed to continue hiking rates. While we do anticipate policy makers may issue one final rate hike through Q1 next year the promise of a correction in policy through H2 is beginning to weigh on the Dollar. The DXY index has given up nearly 3% from its October high. With the USD on the back foot, the Euro pushed back above 1.09, while the GBP held onto gains above 1.24 despite a sharp correction in UK retail sales Friday. Consumer spending retreated in October suggesting the Bank of England’s 14 rate hikes are now adding increased pressure on UK households. A string of souring macroeconomic data sets has market pricing an end to the BoE tightening cycle with policy makers expected to begin cutting rates through the second half of next year. Without its yield advantage, the GBP may struggle to maintain upward momentum against key major counterparts. In other news, Japanese Yen has forced the USD back below 150 and was among the best performers Friday.With little of note on today’s docket, our attentions turn to Tuesday’s FOMC meeting minutes and Canadian inflation data Tuesday for direction through the week.
Expected Ranges
- AUD/USD: 0.6350 - 0.6530 ▲
- AUD/EUR: 0.5900 - 0.6000 ▲
- GBP/AUD: 1.9000 - -0.07 ▼
- AUD/NZD: 1.0800 - 1.0900 ▲
- AUD/CAD: 0.8800 - 0.8950 ▲