Commodity currencies under pressure as Fed soundbites dominate direction
Daily Currency Update
The Australian dollar underperformed through trade on Thursday amid an elevated risk-off environment and whippy price action across treasury, yields, bond markets and currencies. Having tracked sideways through the early hours of the local session, the AUD trended toward and below US$0.63 leading into the overnight session, marking intraday lows at US$0.6295 as markets prepared for Fed Chair Jerome Powell’s all important market update. Conditions were whippy leading into the speech and volatility continued through the address as Powell offered both hawkish and dovish soundbites. Powell pointed to the resilience of economic growth and the labour market as markers supporting further rate hikes, while at the same time acknowledging the significant tightening in financial conditions, suggesting persistent tightening “can have implications for monetary policy”. US treasury yields surged to a 16-year high before paring gains, while the USD followed a similar track, rallying early before correcting lower. As markets pared expectations of another rate hike in November the AUD clawed its way back above US$0.63 and after a brief foray above US$0.6350 opens this morning in much the same position as it started on Thursday.Our attentions turn now to NZ trade figures, Japan inflation data, UK and Canadian retails sales, a slew of Fed speakers, and of course Israel/Hamas tensions as the primary drivers guiding direction into the weekly close.
Key Movers
Price action among major currencies has been whippy through the last 24 hours as investors respond to comments from Fed Chair Jerome Powell. Powell offered both hawkish and dovish soundbites as he addressed attendees of the Economic Club in New York, pointing to the contrasting implications of significantly tighter financial conditions and resilient economic and labour market growth. US treasury yields surged toward 16-year highs in response to Powell’s more hawkish notes, before paring gains after his more dovish musings. All in all it was a message of caution and patience allowing investors to push back expectations for further rate hikes, pricing out a November rate adjustment. The USD gave up early gains, closing lower on the day with the DXY index down 0.3% overnight. With the USD under pressure the euro tested a break above 1.06, while sterling made a run at 1.22 and the yen pushed the dollar back toward 149.60.Our attentions turn to UK retail sales data and more Fed commentary as key markers guiding direction into the weekly close.
Expected Ranges
- AUD/USD: 0.6280 - 0.6380 ▼
- AUD/EUR: 0.5950 - 0.6050 ▼
- GBP/AUD: 1.9000 - 1.9400 ▲
- AUD/NZD: 1.0780 - 1.0880 ▲
- AUD/CAD: 0.8620 - 0.8720 ▲