AUD slides on stronger US wages and waning risk sentiment
Written by
Daily Currency Update
The Australian dollar underperformed through trade on Tuesday, giving up gains hard won last week amid stronger than expected US wage data and a decline in risk sentiment. The AUD tracked lower through the domestic session after retail sales data for March printed lower than expected. While inflation and labour market performance continue to outperform market expectations sluggish consumer demand will afford the RBA some confidence they are making progress in working toward correcting price pressures. With markets paring expectations for a final rate hike, with just a 25% likelihood of further hikes priced in the AUD tracked back toward US$0.65. Stronger than expected US employment cost data then forced the Aussie dollar toward intraday lows near US$0.6480.Our attention now turns to the Federal Open Market Committee policy update. While we expect rates will not change Fed President Powell’s accompanying press conference could provide guidance as to the timing and trajectory of future rate hikes. With inflation and wage inflation sticky we will be keen to see if the Fed continues to characterize the stronger data as a momentary blip or the beginnings of a tricky path back to target.
Key Movers
The US dollar rebounded through trade on Tuesday, outperforming major counterparts following stronger than anticipated wage data and a jump in treasury yields. Risk sentiment faltered and equities fell near 1% on the day after the Employment Cost Index report (the Fed’s preferred measure of wage inflation) rose by 1.2% in quarter one. With market estimates pricing in just a 1% increase the robust print elevated concerns sticky wages and price pressures could further delay the Fed’s rate-cutting cycle and may force policy makers to proffer one final rate hike. US treasury yields spiked with 2-year yields back over 5%, while 10-year yields jumped 5 basis points. The DXY index rose 0.5% on the day with the euro performing well compared with other majors amid higher than expected GDP data while the yen was weaker against the dollar marking intraday highs at ¥157.82.Our attentions turn now US labour market data ahead of the Fed’s Federal Open Market Committee policy update. We expect the Fed will leave rates on hold and will likely reiterate concerns surrounding upside inflation shocks. With no new economic projections anything short of a surprise shift in sentiment should mean price action remains well contained.
Expected Ranges
- AUD/USD: 0.6420 - 0.6580 ▼
- AUD/EUR: 0.6020 - 0.6130 ▼
- GBP/AUD: 1.9150 - 1.9350 ▲
- AUD/NZD: 1.0950 - 1.1050 ▲
- AUD/CAD: 0.8880 - 0.8980 ▼