AUD tumbles on heels of divergent RBA and Fed policy outlooks
Wednesday 8 March, 2023
Daily Currency UpdateThe Australian dollar was the worst performer among G10 currencies through trade on Tuesday, tumbling through supports at US$0.67 and US$0.6680 after the RBA softened its tightening bias and Fed Chair Jerome Powell offered a distinctly more hawkish statement to the Senate Panel for Monetary Policy. The AUD tracked sideways through the early part of the domestic session as investors appeared content in treading water ahead of the RBA's March policy update. While lifting rates by 25 basis points the board softened its guidance on future rate hikes highlighting the importance of being guided by data. A slowdown in GDP growth and consumer demand through February is clearly weighing on policy makers and the hint of data dependence was enough to force the AUD and domestic rates lower. Having traded at US$0.6750 leading into the policy announcement the AUD dropped toward $US0.67 trading through the key support handle shortly after the local close. The AUD fell steadily overnight breaking through US$0.6680 and US$0.6650 before Fed Chair Jerome Powell issued a hawkish surprise and sent the AUD tumbling through US$0.66. Powell highlighted the strength of recent economic data points and warned that while inflation had moderated there was still a long way to go before inflation was back down near the Federal Open Market Committee's 2% target. Having marked fresh lows at US$0.6575 our attentions turn today to RBA Governor Lowe for any further guidance on RBA policy and the possibility of a pause in the tightening cycle in April.
Key MoversThe pound was among the worst performer on Tuesday, second only to the AUD having given up over 1.5% and tumbled below US$1.1850 following commentary from key Bank of England officials. The Monetary Policy Committee's Mann, while traditionally a hawk and proponent of aggressive rate hikes, strayed from convention overnight suggesting the GBP would likely suffer sustained downward pressure when compared with key counterparts in the USD and euro, highlighting a widening gap in monetary policy expectations. While Mann continues to call for the Bank of England to keep pace with the European Central Bank and Federals reserve it appears her fellow committee members are content in maintaining a more measured approach to future rate hikes amid signs inflation pressures appear to have peaked. The GBP buy is US$1.1825 at the time of writing. In the wake of Jerome Powell's testimony the USD enjoyed a modest boost, reversing recent losses and extending gains, lifting the DXY index through 105.6, up 1.25% on the day. The USD was the strongest of the majors with the yen outperforming despite the higher rates backdrop. The risk-off mood that enveloped markets following Powell's commentary helped bolster demand for the yen while the euro gave up Monday's gains and tracked back toward US$1.0550. Our attentions turn now to the Bank of Canada for more central bank guidance. It is anticipated policy makers will pause the tightening cycle allowing past hikes time to filter through to the real economy. US ADP payroll data and Jolts Job opening headline the data ticket and should provide some insight into labour market performance ahead of Friday's all-important non-farm payroll print.
- AUD/USD: 0.6530 - 0.6750 ▼
- AUD/EUR: 0.6220 - 0.6320 ▼
- GBP/AUD: 1.7800 - 1.8100 ▲
- AUD/NZD: 1.0750 - 1.0880 ▼
- AUD/CAD: 0.9020 - 0.9180 ▲