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AUD rebounds as all eyes turn to the RBA

Tuesday 1 February, 2022

Daily Currency Update

The Australian dollar rallied through trade on Monday, rebounding off 18-month lows tested on Friday amid a broad lift in risk appetite. Having given up almost 3% across three sessions last week the AUD found support, advancing back through 0.70 and 0.7050 to touch intraday highs at 0.7080. With little headline news on hand investors looked to re-adjust the scope and scale of last weeks risk sell-off, allowing global equities, commodities, and commodity currencies to rally. Having significantly underperformed last week the AUD was the primary benefactor from the return in risk demand, rallying 1% on the day.  Our attentions now turn to the RBA’s first monetary policy update for 2022. There is a widely held expectation policy makers will announce an end to QE supports with those more aggressive pundits chasing a clear and definitive shift in RBA rhetoric. The board have so far downplayed rate hike expectations, but as domestic inflation pressures continue to rise and the labour market recovers markets expect policy makers will need to re-adjust forward guidance. A stubbornly dovish stance could hamper the AUD recovery, while a Hawkish tilt could drive a push back above 0.71 US cents.

Key Movers

The US dollar gave up high’s registered at the end of last week as a renewed demand for risk allowed investors to move off haven currencies. The Dollar index fell half a percent as the Euro rallied back above 1.12 and the GBP pushed back toward 1.3450. Stronger than anticipated German inflation data and an end to near term political instability in Italy helped spur demand for the single currency.  The GBP showed little signs Boris Johnson political woe’s were about to spur a further depreciation rallying a quarter percent on the day as markets eye Thursday’s Bank of England policy update and rate statement instead. USD dollar weakness was compounded by commentary from two key Fed policy makers. San Francisco Fed President Daly and Kansas City President George hinted the market may be getting ahead of itself and that a gradual pace of interest rate adjustments was prudent in the current environment, while a focus on balance sheet correction may prove more beneficial in stabilising inflation and allow for a shallower rate hike trajectory. With investors extending bets of Fed rate hikes following Fed Chair Jerome Powell’s comments last week, the fresh insight highlights the division within the Fed when it comes to the best course of action moving forward. Our attentions remain affixed to fed policy updates and commentary as a key driver underpinning the risk narrative.

Expected Ranges

  • AUD/USD: 0.6960 - 0.7150 ▲
  • AUD/EUR: 0.6250 - 0.6350 ▲
  • GBP/AUD: 1.8880 - 1.9220 ▼
  • AUD/NZD: 1.0670 - 1.0820 ▲
  • AUD/CAD: 0.8880 - 0.9050 ▲