AUD buoyed by hawkish RBA and possibility of one more rate hike
Daily Currency Update
The AUD edged upward through trade on Tuesday as investors' attentions returned to central bank policy expectations amid hopes world leaders will broker some form of resolution between Israel and Hamas before the conflict descends into an all-out regional war. Risk sentiment improved, helping underpin Monday’s recovery. Having found support on moves approaching US$0.6330 the AUD climbed through US$0.6350 following the release of the RBA meeting minutes. Policy makers adopted a more hawkish tone, with the official record of the October meeting pointing toward a lowering in tolerance for a slower return to the inflation target. It appears the RBA is preparing markets for a possible rate hike in November. If next week's Q3 inflation print surpasses market and RBA expectations another rate adjustment is a real possibility. While a better-than-expected US retail sales print forced a dip back toward the intraday low a recovery through the back end of the overnight session allowed the AUD to touch US$0.6380 before settling nearer US$0.6370 leading into this morning's open.Our attention now turns to the commentary from new RBA Governor Bullock, while China activity data and UK CPI data headline the macro ticket.
Key Movers
A robust US retail sales print spurred a rally in US treasury yields Tuesday as markets price in the possibility of another Fed rate hike before the end of the tightening cycle. Retail sales were much stronger than anticipated, defying the narrative that higher interest rates and constrictive financial conditions are pushing the US economy toward recession. With industrial production surprising to the upside as well investors were forced to price in one more rate hike if not in November then at least the December or January meetings. Markets are now pricing a 60% chance of another rate hike, helping propel the USD higher early before paring gains and finishing lower to flat for the day. With many investors already long USD and risk aversion easing support for an extended USD upside is waning. The euro has pushed back above US$1.0550 while the yen closed flat and the GBP slipped back below US$1.22.Our attention now turns to China activity data and UK CPI numbers. With annual UK inflation expected to fall toward 6% a print above expectations will drive Bank of England rate hike expectations and could afford the GBP near-term support.
Expected Ranges
- AUD/USD: 0.6280 - 0.6430 ▲
- AUD/EUR: 0.5980 - 0.6080 ▲
- GBP/AUD: 1.9000 - 1.9400 ▼
- AUD/NZD: 1.0680 - 1.0850 ▲
- AUD/CAD: 0.5180 - 0.5280 ▲