Home Daily Commentaries AUD under pressure as US data continues to point to soft landing

AUD under pressure as US data continues to point to soft landing

Daily Currency Update

The Australian dollar remains under pressure as the US dollar forges upward, consolidating a move toward 6-month highs amid stronger domestic data and growing China uncertainty. While opening in much the same position as Wednesday, the AUD tested supports at US$0.6360 as risk sentiment wavered amid growing Chinese economic concerns.

With no new data on hand to shift the narrative, markets remain wary of the sustained slowdown in momentum and absence of significant fiscal stimulus. China officials have to date offered only incremental policy tidbits in response to the rapid slowdown in economic activity, leaving markets wanting and driving the Chinese yuan lower.

Despite the PBOC setting its strongest daily fix (when measured against market analyst expectations) since 2018, the CNY remains under pressure against the USD, adding more downward pressure on the AUD as a major proxy.  Having eyed new lows, the AUD briefly poked its head above US$0.64, before stronger US services data prompted another downturn and moved back toward US$0.6380.

Our attention now turns to departing RBA governor Lowe. After policymakers opted to leave rates on hold on Tuesday, we are seeking further details on future monetary policy decisions.

Key Movers

The US dollar edged higher on Wednesday following stronger-than-anticipated US ISM services data. The latest report showed service sector activity accelerated in August, underpinning a narrative of US economic resilience. With key subcomponents within the report, all rising market expectations for a peak Fed funds rate lifted marginally, although the likelihood of anything but a pause later this month still remains a slim possibility, instead, markets are positioning for a 25-point hike in November.

With the dollar gathering momentum, the euro plunged toward 1.07 while the sterling slipped below 1.25, marking a fresh 3-month low. Comments from Bank of England Governor Andrew Bailey drove cable below key supports amid expectations the bank may be nearer to its peak interest rate setting than markets anticipated.

With the USD consolidating near 6-month highs, our attention turns to weekly unemployment claims as a key marker of labour market performance and Fed policy expectations.

Expected Ranges

  • AUD/USD: 0.6350 - 0.6490 ▼
  • AUD/EUR: 0.5880 - 0.5990 ▼
  • GBP/AUD: 1.9450 - 1.9750 ▼
  • AUD/NZD: 1.0820 - 1.0920 ▲
  • AUD/CAD: 0.8680 - -0.125 ▲