AUD falters following softer China data and risk off backdrop
Friday 12 May, 2023
Daily Currency UpdateThe Australian dollar tracked lower through trade on Thursday amid softer Chinese data sets and a broadly weaker risk backdrop. Having poked its head above US$0.68 following Wednesday’s US CPI update the AUD is again firmly entrenched within a familiar trading band, giving up intraday highs north of US$0.6790 to mark intraday lows at US$0.6690. China inflation and credit data printed softer than anticipated. Credit growth slowed through April as household lending contracted and corporate borrowing fell short of expectations. When coupled with the weak import data earlier this week fears a softened post covid rebound in China will dampen the global economic recovery weighed on investors. Commodity prices fell with key industrial metals tumbling, dragging the AUD lower. Having slipped below US$0.6750 leading into the end of the domestic session the AUD continued to track lower overnight amid the risk off backdrop.
With little of note on the domestic ticket, our attentions turn to US consumer sentiment and inflation expectations data.
Key MoversThe US dollar is stronger this morning as a risk off tone engulfed markets through trade on Thursday. Softer Chinese data added to fears the post Covid rebound is over, while ongoing banking sector turmoil weighed on Investors. PacWest Bancorp reported a near 0% fall in deposits last week, prompting a 20% drop in its share price. A move spilled into other regional banks as evidenced by the KBW index. The US dollar advanced across the board despite a decline in treasuries and further evidence inflation pressures are abating and the labour market is softening. With the dollar higher the GBP gave up 1.26, crashing back toward 1.25 after the Bank of England policy update. The MPC voted to lift the cash rate 25 basis points to 4.5% while maintaining a tightening bias. The bank noted it is closely monitoring inflation but expects it will fall from 10% back to 5% before year's end. Markets, while pricing in at least one more 25-point hike pared back policy expectations for the rest of the year driving 2 year rates down and forcing the GBP lower. The Euro followed the GBP lower finding support marginally above 1.09 while the JPY performed better than most majors amid a lower global rates backdrop.
Our attentions turn now to UK GDP data, where we expect very little growth as the economy edges ever closer to recession, and US consumer sentiment data.
- AUD/USD: 0.6630 - 0.68 ▼
- AUD/EUR: 0.6080 - .6180 ▼
- GBP/AUD: 1.8580 - 1.8780 ▲
- AUD/NZD: 1.0580 - 1.0680 ▼
- AUD/CAD: 0.8980 - 0.9080 ▼