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Aussie dollar holding above 69 US cents

Friday 22 July, 2022

Daily Currency Update

The Australian dollar is slightly stronger this morning trading just above 69 US cents. Yesterday the AUD/USD pair opened lower at the beginning of the day, amid tepid Australian data and an on-hold Bank of Japan denting the market sentiment in the Asian session. As expected, the Bank of Japan left its monetary policy unchanged, holding rates at -0.1% while maintaining the yield curve control. Governor Haruhiko Kuroda repeated his pledge to ease the monetary policy further if required, adding they expect short and long-term policy rates to remain at present or lower levels. On the data front yesterday we saw the release of the National Australia Bank (NAB) Quarterly Business Confidence, which indicated business conditions had strengthened in Q2, up 9pts to +20 index points, while business confidence eased back to +5 index points. Conditions were strong across most sectors, reflecting improvement from the Omicron-affected Q1. Looking ahead today we will see the release of Flash Manufacturing Purchasing Managers' Index (PMI), a survey of about 400 purchasing managers, which asks respondents to rate the relative level of business conditions including employment, production, new orders, prices, supplier deliveries, and inventories.

Key Movers

Overnight all eyes were on the European Central Bank (ECB) monetary policy decision. The ECB hiked rates by 50 bps larger than expected, the first hike in over a decade, taking the deposit rate back to 0% and ending its negative rate policy that has been in place since 2014.  The main issues that forced the ECB into taking more aggressive action were inflation and the ongoing crisis with Russia. Italian Prime Minister Mario Draghi effectively resigned, and elections will be held by the second half of September. Italian President Sergio Mattarella has dissolved the Italian parliament, opening the door for a snap election on September 25. Overnight the US 10-year rate still remains broadly contained within a 2.75%-3.25% trading range, with recession fears capping the upside and still-high inflation limiting the downside. On the data front, US Jobless claims ticked up to 251k, continuing their gradual trend up over recent months, to now their highest level since November.  While jobless claims can be distorted at this time of year by seasonal adjustment issues, the trend higher seems clear and is consistent with growing anecdotes of hiring freezes and layoffs at several multinational companies. Separately, the Philadelphia Fed business survey was much weaker than expected, with forward capex intentions falling to a 9-year low and prices paid hitting their lowest level since early last year.

Expected Ranges

  • AUD/USD: 0.6850 - 07050 ▲
  • AUD/EUR: 0.6650 - 0.6850 ▲
  • GBP/AUD: 1.7200 - 1.7400 ▼
  • AUD/NZD: 1.0950 - 1.1150 ▲
  • AUD/CAD: 0.8850 - 0.9050 ▲