Home Daily Commentaries AUD tracks sideways as eyes turn to US inflation update

AUD tracks sideways as eyes turn to US inflation update

Daily Currency Update

The Australian dollar tracked sideways through trade on Monday, supported by the beginnings of a recovery in risk demand. Equities and risk assets rebounded; recouping losses suffered amid last week's risk-off move. Treasury yields steepened and the AUD bounced around US$0.6570, having rebuked attempts to push below US$0.65.

Markets appear content in squaring positions ahead of Thursday’s US CPI print. A softer-than-anticipated inflation print in July was the catalyst driving the AUD toward monthly highs near US$0.69. With markets preparing for an end to the Fed’s tightening cycle, another significant downturn in price pressures could elevate calls for policymakers to stop hiking rates sooner than currently anticipated.

A correction in US rate expectations will likely weigh on the dollar. While we expect the market reaction will be more measured than last month’s move that entered oversold territory, a softer read could help lift the AUD back toward US$0.66/0.67. In contrast, a surprise uptick in price pressures will elevate calls for a September rate hike and force the AUD to again test US$0.65.

Our attentions turn now to Chinese trade data, ahead of CPI data Wednesday. We expect ranges will be well contained ahead of the US CPI update.

Key Movers

Price action was largely muted through Monday as markets appeared content in squaring positions following last week's risk-off move and preparing for this week's all-important US CPI print. The USD was broadly flat, the yen the weakest of majors, while the euro held onto gains above 1.10 and the sterling pushed above 1.2750, outperforming its major counterparts.

With little of note on today’s docket, our attentions turn to Thursday night's US CPI update, with markets likely to withhold major bets and track a narrow range in the lead-in.

Looking beyond this week, reports have emerged the US government will shut down when Federal funding runs out on September 30. While there is no risk of debt default similar to that, that plagued markets earlier this year, the end of the current Federal funding arrangement will see key government agencies shut down, resulting in delayed reporting and a lack of key services.

Republicans are reportedly emboldened by Fitch’s decision to downgrade the US sovereign risk rating, jumping on the opportunity to push for spending cuts and budget controls. If a deal cannot be reached and the narrative gathers steam, the Fed may be forced to delay a September rate hike, while pressure on US treasury yields will grow and could spill over and weaken the USD.

Our attentions are now attuned to developments in this narrative.

Expected Ranges

  • AUD/USD: 0.6500 - 0.6650 ▼
  • AUD/EUR: 0.5950 - 0.6050 ▼
  • GBP/AUD: 1.9280 - 1.9520 ▲
  • AUD/NZD: 1.0700 - 1.0800 ▼
  • AUD/CAD: 0.8720 - 0.8820 ▼