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Risk-off backdrop forces AUD to give up post RBA gains

Thursday 7 April, 2022

Daily Currency Update

The Australian dollar underperformed through trade on Wednesday, giving up post RBA gains to slip back below 0.75 US cents. A broader risk-off backdrop coupled with softer commodity prices and a hawkish Fed policy meeting minutes forced the AUD off intraday highs near 0.76 US cents, falling steadily overnight giving up 0.7550 and 0.75, to touch intraday lows at 0.7490. Having punched through 0.7650 earlier in the week, confirmation the Fed will adopt an aggressive path to neutral monetary policy coupled with fears COVID lockdowns will have a greater impact on China’s 2022 growth outlook, hampered demand for risk assets and commodity currencies. The USD was generally stronger, while oil prices led losses across key commodities down 4.5% overnight and copper gave up a modest 1.2%. With volatility elevated, monetary policy, commodity prices and the war in Ukraine will continue to dominate direction through the weeks and months ahead.

Key Movers

A risk-off backdrop dominated direction through trade on Wednesday bolstering the USD and other key safe haven assets. The DXY dollar index jumped two tenths of a percent, marking fresh 18 month highs while the euro and GBP traded flat. Risk demand was tepid amid concerns the latest lockdown in Shanghai will further dampen Chinese growth prospects and exacerbate global supply chain shortages, extending near term inflationary pressures. This coupled with confirmation the Federal Reserve will adopt a more aggressive approach to monetary policy normalisation spurred a definitive risk-off shift and move away from the trend of the last four days. The FOMC minutes showed most members supported one or more 50 basis point rate hikes and a re-balancing of the balance sheet. With monetary policy expectations a key driver of direction, our attentions turn now to the ECB’s latest meeting account. We are keenly attuned to anything that affords greater insight into an accelerated tapering schedule and the possibility of rate hikes later this year.

Expected Ranges

  • AUD/USD: 0.7450 - 0.7630 ▼
  • AUD/EUR: 0.6850 - 0.6970 ▼
  • GBP/AUD: 1.7200 - 1.7520 ▲
  • AUD/NZD: 1.0820 - 1.0920 ▼
  • AUD/CAD: 0.9380 - 0.9490 ▲