Aussie dollar holds above US$0.66
Wednesday 23 November, 2022
Daily Currency UpdateThe Aussie dollar is slightly weaker this morning when valued against the US dollar. The Aussie dollar recovered some ground in the late North American session, after hitting a daily low below US$0.66, amid an improvement in sentiment. Yesterday we heard from the Reserve Bank of Australia (RBA) Governor Philip Lowe, who said that if salaries go up, that will keep inflation in Australia at around “Seven percent, plus or minus (a bit),” adding that a wage spiral in the ’70s, ’80s, turned out to be a disaster. Governor Philip Lowe sympathised with workers who can’t accept their wages falling behind, though he added that inflation would get to the RBA’s target if the country can ride through this period. He expects to raise rates further and even put 50 basis points increases on the table.
There remains some focus on China’s latest COVID-19 outbreak. New daily case numbers reached 28,000, just under the April peak when the Shanghai outbreak was the focus. There is a growing share (about 20%) of the country facing some sort of restrictions, with manufacturing centre Guangzhou at the centre of the outbreak and localised outbreaks in Beijing and Chongqing. Under the new government guidelines, the restrictions are more piecemeal and not city-wide. Three deaths have been reported in the Chinese capital since Saturday, bringing the country’s official death toll to 5,229. The latest fatalities have plunged parts of the city home to more than 21 million back into lockdown. The deaths come amid rare protests over China’s zero-Covid policy.
Key MoversRisk appetite was again higher overnight, with seemingly more weight on the Federal Reserve dialling down its hawkish policy stance than the current COVID outbreak in China. The Federal Reserve’s interest rate rise from 0.25% to 4% was remarkable, but not because the 3.75% increase was historically large or fast. Unlike in the past, interest rates had to climb out of a 0% basement. With that accomplished, we can now see 4% as the new ground level, where the interest rate rises, begins to bite. The US central bank is expected to shift to a 0.5 percentage points increase at its mid-December policy meeting, following a string of jumbo lifts, taking the Fed funds rate to a range of 4.25 per cent to 4.5 per cent. Financial markets indicate a peak of 5 per cent by May before receding to 4.6 per cent by the end of next year on speculation the Fed will have to ease policy as the economy slows.
Wall Street rallied overnight as investors hope the powerful US Federal Reserve will back off its aggressive pace of monetary tightening. The Reserve Bank of New Zealand is expected on Wednesday to ramp up the speed of an already-aggressive policy tightening with a 0.75 percentage points lift. The futures market indicates the S&P/ ASX 200 will start 0.3 per cent firmer after the S&P 500 rose 0.5 per cent on Friday. The Dow Jones Industrial Average gained 0.6 per cent, and the Nasdaq Composite was unchanged.
- AUD/USD: 0.6550 - 0.6750 ▼
- AUD/EUR: 0.6350 - 0.6550 ▼
- GBP/AUD: 1.7750 - 1.7950 ▼
- AUD/NZD: 1.0700 - 1.0900 ▲
- AUD/CAD: 0.8800 - 0.9000 ▲