AUD edges higher as markets eye US inflation update
Tuesday 14 February, 2023
Daily Currency UpdateThe Australian dollar edged upward through trade on Monday as investors sought to square positions leading into tonight’s all-important US CPI print. Having steadied following the post-US payroll and services shock the AUD appears well supported on moves approaching US$0.6900 while struggling to reach back beyond US$0.70. Analysts appear reluctant to extend gains amid a shift in the narrative as hopes central banks were nearing the end of this current tightening cycle fade. Fed commentators affirmed policymakers' commitment to controlling inflation, suggesting two additional rate hikes were required if disinflationary momentum was to be maintained. With little of note on the domestic ticket, the AUD faltered on moves approaching US$0.6980 as attention turned to US CPI data Wednesday morning. Markets remain incredibly vulnerable to fluctuations in the inflation narrative and this week’s CPI update remains critical in shaping near-term direction. The rapid rise in rates and swift repricing of near-term FOMC policy expectations enjoyed over the last week hinges on expectations the Fed will employ 3 more rate hikes. Given market sensitivity to inflation shocks a miss against expectations will drive an outsized reaction across currency markets. A downturn in US price pressures will dampen calls for a third rate hike and help lift the AUD back through psychological support while an upside shock could drive the AUD toward 2023 lows and below US$0.6880.
Key MoversWith the USD softer through trade on Monday, the NZD and AUD lead gains across majors, while the GBP and euro enjoyed mid-level backing and the JPY underperformed. With little headline data on hand to drive direction, the euro found support following an upgrade in EU commission growth forecasts. The common area is expected to avoid recession as growth prospects recover through 2023 amid an upswing in disinflationary momentum. While weaker across most counterparts, the USD advanced almost 1% against the yen, extending back above 132 to test 132.50. In the absence of any meaningful catalyst, we can only point to the broader uptick in global rates and a correction in expectations the frontrunner to replace Kuroda as Bank of Japan (BoJ) Governor Kazuo Ueda will drive a correction in outdated yield curve control policies. Expectations Ueda as an outsider would drive change within the BoJ and bring an end to a policy platform no longer applicable faded after Ueda suggested the current program was appropriate and no immediate shift in policy was required. With the BoJ intent on sticking to its accommodative program of yield curve stimulus, the yen is likely to remain under pressure until a clear shift in policy is announced. Our attention turns now to CPI data. With markets incredibly sensitive to inflation shocks we anticipate an outsized reaction across rates and currency markets in the wake of tonight’s all-important print.
- AUD/USD: 0.6770 - 0.7080 ▲
- AUD/EUR: 0.6380 - 0.6520 ▲
- GBP/AUD: 1.7280 - 1.7520 ▼
- AUD/NZD: 1.0900 - 1.1000 ▼
- AUD/CAD: 0.9180 - 0.9320 ▲