Daily Currency Update

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AUD steadies ahead of all-important inflation print

AUD - Australian Dollar

The Australian dollar showed little to excite investors in what was a relatively quiet trading day as currency markets appear to have entered a period of consolidation, squaring positions following the surge across risk assets and commodities through October to date. Having opened at or near 0.7485 the AUD bounced between this handle and intraday highs at 0.7525, unable to extend gains beyond last week’s high, yet well-supported on moves below 0.75 US cents. Markets seemed content in monitoring positions ahead of today’s all-important quarterly CPI report. Estimates suggest trimmed mean CPI will rise by half a percent, a jump of 0.6% or more will push the annualised rate higher and much nearer the middle of the RBA’s target range. The RBA has been steadfast in its view the Australian economy is immune to the price pressures felt across the broader global economy. A surprise to the upside will add mounting pressure on policymakers to meet the market and tighten monetary policy well before the forecasted 2024.

Key Movers

The US dollar found some support overnight following a stronger than expected showing across consumer confidence data as Covid concerns ease. Having braced for a fall, the 4 point uptick was a welcome surprise as investors continue to drive gains across equity markets, with the S&P 500 up a further 0.7% on strong earnings reports. USD upside forced the EUR back below 1.16 touching lows at 1.1585 while GBP failed to hold onto gains above 1.38 and the JPY continues to test new lows. The JPY was the weakest of major currencies overnight, down another 0.4%. The correction in risk sentiment coupled with a pessimistic assessment of Japanese economic growth prospects and monetary policy expectations have forced the yen to give up any risk off gains enjoyed through Q3, allowing the USD to surge through 114.

Our attentions turn now to the Bank of Canada and its latest policy update. We expect it will significantly reduce is current asset purchase programme by as much as 50%, while greater interest lies in forward rate guidance. Markets have brought forward estimates for rate hikes, and we are keen to see if the BoC looks to push back.

Expected Ranges

AUD/USD: 0.7430 - 07550 ▲

AUD/EUR: 0.6390 - 0.6520 ▲

GBP/AUD: 1.8220 - 1.8450 ▼

AUD/NZD: 1.0390 - 1.0550 ▲

AUD/CAD: 0.9250 - 0.9350 ▲