Home Daily Commentaries AUD creeps higher on heels of weaker USD

AUD creeps higher on heels of weaker USD

Daily Currency Update

The Australian dollar outperformed through trade on Monday, extending gains enjoyed through trade on Friday, up half a per cent and closing in on US$0.68. With little domestic data on hand, the AUD was again at the mercy of wider market flows. A weaker USD helped the AUD consolidate a break above US$0.67 and extend toward intraday highs just south of US$0.6790.

Fall out from Friday’s US non-farm payroll print and a revision in past monthly prints weighed on the USD, while concerns surrounding the looming US Debt Ceiling forced investors to short near-term USD holdings and drive the world's base unit lower.

After a tumultuous and packed agenda last week, this week’s docket is considerably lighter with the 2023 Australian budget, US CPI and Bank of England policy announcement dominating direction. We expect few surprises from tonight’s labour budget. Cost of living pressures will likely be at the forefront of this year’s budget, but with inflation stubbornly sticky, widespread relief is unlikely.

The Treasurer and Government will be conscious of ensuring assistance is targeted and does not contribute to ongoing price pressures. We expect the budget will have little impact on near-term AUD value and instead our attention shifts to Wednesday’s US CPI inflation update. Further easing in inflation pressures will likely elevate calls for the Fed to pause its tightening cycle, possibly opening the door for the AUD to climb and consolidate a break above resistance at US$0.68.

Key Movers

The US dollar underperformed through trade on Monday, trading toward the bottom of recent ranges, when valued against a basket of key counterparts. The USD DXY index hit lows marginally above 101 at 101.30 and is now within striking distance of key supports and April lows of 100.80. A break below this handle could signal a broader shift in market flow and set up further downward pressure.

The weaker USD helped the euro, JPY, CAD and GBP all enjoy modest gains throughout the day and our attention turns now to US CPI data. With the week’s macroeconomic docket lighter than usual, this latest inflation update could prove pivotal in shaping direction. Calls for the Fed to pause it's tightening cycle amid a looming credit crunch and tighter financial conditions have grown in recent weeks.

Further softening in inflation pressures will likely add more weight behind such calls, with markets eyeing an end to this tightening cycle, weaker inflation could be the catalyst to drive the USD through supports.

Expected Ranges

  • AUD/USD: 0.6620 - 0.6820 ▲
  • AUD/EUR: 0.6080 - 0.6220 ▲
  • GBP/AUD: 1.8480 - 1.8920 ▼
  • AUD/NZD: 1.0620 - 1.0750 ▼
  • AUD/CAD: 0.8980 - 0.9120 ▲