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AUD regains ground following USD selling pressure

Daily Currency Update

Following the Reserve Bank of Australia’s (RBA) decision to hike interest rates by 25 basis points to 3.1%, the Australian dollar has clawed back some previous gains lost despite the risk-off mood and is looming around the US$0.6730 mark. Market sentiment began to shift in favour of the Australian dollar during the Asian session and through to the North American session following the Chinese government hinting at the possibility of relaxing its COVID-zero policy after realisations that its people will have to be prepared to live with the virus. Albeit some previous gains were recouped, the Australian dollar did face renewed pressure after data revealed that the Australian economy expanded less than anticipated in the third quarter as stubborn inflation and increasing interest rates dampened consumption. Australian dollar strength was also aided by the Greenback coming under some selling pressure following market sentiment fearing further interest rate hikes will only push the US economy into recession. On the domestic ticket, we have the RBA Bulletin and RBA Governor Jones’s speech this morning which may further elaborate on their decision to hike rates on Tuesday as well as possibly provide an indication of potential future rate hikes. We also have balance of trade, exports and imports data being released which will seek to boost domestic and foreign investor confidence in Australian economic health.

Key Movers

The US dollar continued to post losses against the majority of other major currencies, irrespective of the overall bleak market mood. Albeit these losses were maintained, there are growing market concerns that the US economic landscape isn’t as fruitful as their currency’s performance over the recent months has foretold. During the US session, further risk-off fuel came by way of Russian President Vladimir Putin re-sparking nuclear war fears with the possibility that Russia and its allies might need to use nuclear weapons to defend themselves.  Following a surge in demand for government bonds following this news from Russia, The US treasury yield curve inverted the most in 40 years off the back of the risk-off sentiment surrounding US economic health and future rate hike uncertainty. Failing to make a gain on the day, the 2-year note yields 4.26%, and the 10-year note yields 3.43%, currently. On their domestic ticket, nonfarm productivity succeeded to surpass the market forecast of 0.6%, coming in at 0.8%. With an annualised growth of 2.3%, the third quarter of the year's Gross Domestic Product for the Eurozone performed better than expected. It succeeded in surpassing market expectations of 0.2% and posted 0.3%. With the next level of resistance at 1.060 for the EUR/USD, the market will look to further USD weakness for a run to this level. We also expect European Central Bank President Lagarde to issue a speech this evening, providing an insight into how the Eurozone expects to react to the drastically shifting global economic environment. In line with expectations, the Bank of Canada increased its benchmark interest rate by 50 basis points to 4.25%. While conceding that inflation is still high, policymakers pointed out that there is mounting evidence that the tighter monetary policy is constraining domestic demand. Currently, the CAD/USD has lost 1.30% this week and trading around the C$0.7300 mark. The GBP/USD and JPY/USD have both succeeded to hold onto gains off the back of a weakened US dollar, currently with 0.67% and 0.37% upticks respectively.

Expected Ranges

  • AUD/USD: 0.6670 - 0.6750 ▲
  • AUD/EUR: 1.5723 - 1.5576 ▲
  • GBP/AUD: 1.8060 - 2.824 ▲
  • AUD/NZD: 1.0540 - 1.0600 ▼
  • AUD/CAD: 0.9120 - 0.9200 ▲