AUD finds support ahead of big data week
Daily Currency Update
The Australian dollar was among the best performers through trade on Monday, up four-tenths of a per cent, yet still range-bound as markets square positions ahead of a busy macroeconomic agenda. Having tested a break above US$0.65 just 10 days ago, the AUD was among last week's worst performers, giving up gains amid a rebound in US yields and a correction in RBA policy expectations.Last week's rate hike was well forecast and 80% of market participants had priced in the adjustments, however, a change in commentary within the accompanying statement forced investors to shift policy expectations moving forward. Policymakers had maintained a consistent tone in the 6 months leading into the November statement suggesting “some further tightening may be required”. After hiking rates, the rhetoric shifted to “whether further tightening is required”.
The subtle shift in language was perceived as a dovish shift and while 20-basis points of adjustments are priced into May 2024, expectations for another near-term rate hike have waned. With US yields recovering on the back of comments from Fed Chair Jerome Powell the AUD is again trading between US$0.63 and US$0.64. Our attention turns now to a host of key risk events.
US CPI data dominates Tuesday’s docket, while the quarterly wage price index report Wednesday will provide the RBA with crucial labour market data ahead of Thursday's employment report and unemployment update. With conditions in the labour market still tight, the market will be looking for any signs of easing as a key marker governing RBA policy.
We are eyeing any shift in the yield narrative that could drive a break outside November ranges between US$0.6320 and US$0.6520.
Key Movers
Price action across major currency markets was subdued Monday as markets square positions ahead of a host of key macroeconomic risk events. US ten-year rates rallied early before giving up gains and settling virtually in line with last week's close as investors' attentions turned to today’s all-important CPI print.After Jerome Powell affirmed the FOMC’s commitment to tighter monetary policy, stating “we are not confident that we have achieved a sufficiently restrictive monetary policy setting to return inflation to the 2% target”, the October CPI print is even more important in guiding monetary policy expectations.
While we anticipate headline pressures will have eased as gasoline prices fall, growing service sector-led inflation remains a concern and could be a catalyst for driving rate hike expectations into the December policy update. With risk appetite subdued amid lingering concern for the Chinese and global growth outlooks in 2024, US yields continue to drive direction.
The USD hit fresh 2023 highs against the yen on Monday, closing in on a break above 152, before retreating back toward 151.50. Markets remain nervous about extending gains amid the fear of intervention, yet it seems clear the BoJ and Ministry of Finance are unlikely to intervene at this level, as the focus remains on the speed and length of yen depreciation and not a fixed price point.
With the GBP and euro largely flat, focus turns to US and UK inflation data as the primary drivers through the coming 24 hours.
Expected Ranges
- AUD/USD: 0.6280 - 0.6450 ▲
- AUD/EUR: 0.5920 - 0.6020 ▲
- GBP/AUD: 1.9100 - 1.9300 ▲
- AUD/NZD: 1.0780 - 1.0880 ▲
- AUD/CAD: 0.8750 - 0.8850 ▲