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AUD under pressure as market price in aggressive Fed policy update

Tuesday 20 September, 2022

Daily Currency Update

The Australian dollar starts the trading day on Tuesday in much the same position as it begun the week, yet the overwhelming bias remains negative. With little of note on the domestic ticket to drive direction, the US and Japanese markets closed in observance of local public holidays price action and volumes were thin. Market attentions remain affixed to this week’s Fed policy update and rate statement and investors appear content in sidelining major bets. Investors have already largely priced in a 75 basis point policy adjustment, while a supersized 100 point rate hike still remains an outside possibility. US treasury rates continue to push higher with 2-year rates marking fresh 15 year highs while 10 year rates traded above an 11 year high. The uptick in global rates provide ongoing USD support and forced the AUD toward intraday lows below US$0.6680 before recovering back above US$0.67 and climbing toward intraday highs at US$0.6730. We anticipate the AUD will continue to maintain ranges between US$0.6670 and US$0.6750 leading into the Fed and FOMC policy update.

Key Movers

Price action across major currencies was well contained through trade on Monday as markets sidelined major bets ahead of the Fed, Bank of Japan and Bank of England monetary policy updates later this week. US treasury rates continued to climb with 2-year rates up 8 basis points to a 15-year high while 10-year rates climbed to an 11-year peak. The outpaced appreciation in 2-year rates sees the yield curve further inverted and the gap close in on 50 basis points. Against a backdrop of higher rates, the dollar continued to find support while the JPY underperformed. Having forced the USD back below JP¥143 the Yen gave up 0.3% and the USD marked intraday highs at JP¥143.60 while the euro bounced around parity trading between US$0.9960 and US$1.0030 and the GBP bounced off a break below US$1.14 closing flat on the day. Our attentions turn now to Japanese CPI data. Ordinarily we wouldn’t place to much credence in the print but with the BoJ meeting Thursday and mounting pressure on policy makers to consider the impacts of the current policy program in the value of the Yen an uptick in inflation pressures could force a policy response. We are watching for an inflation read at or above 3% year on year as key marker price pressures are growing and supportive of a move away from uber accommodative monetary policy.

Expected Ranges

  • AUD/USD: 0.6650 - 0.6750 ▼
  • AUD/EUR: 0.6670 - 0.6730 ▼
  • GBP/AUD: 1.6920 - 1.7120 ▲
  • AUD/NZD: 1.1220 - 1.1320 ▲
  • AUD/CAD: 0.8880 - 0.8950 ▼