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AUD steady ahead of Key RBA policy update

Tuesday 2 November, 2021

Daily Currency Update

AUD - Australian Dollar

The Australian dollar enjoyed a modest start to the week extending back toward resistance at 0.7540 ahead of a busy week of central bank policy updates and key macroeconomic data. The AUD fell steadily throughout the domestic session amid weaker than anticipated Chinese PMI data and ongoing fallout across the property market. China’s policy of pursuing COVID zero continues to cause significant ongoing disruptions as snap lockdowns interrupt the production cycle and will most likely weigh on domestic growth prospects into the foreseeable future. Having touched intraday lows at 0.7485 the AUD found support overnight amid a healthy appetite for risk. Pushing back through 0.75 the AUD touched intraday highs at 0.7535 and opens buying 0.7521 US cents ahead of today’s crucial RBA policy update. Last week's price action across bond markets and the RBA’s decision “not” to defend the yield curve has heightened expectations the RBA is preparing to abandon its current guidance and bring forward forecasted rate hikes. We expect policy makers will be reluctant to move to soon and proffer any definitive timeline, instead opting to tie future rate adjustments to the evolution of domestic inflationary pressures. With the market already pricing in an H2 2022 rate hike we are keenly attuned to see just how far the RBA will move to meet expectations.

Key Movers

Demand for commodity currencies remained in the black through trade on Monday as the AUD, NZD and CAD outperformed most other major counterparts. The Euro moved off Friday’s low bouncing off 1.1545 to break back through 1.16, while the GBP, JPY and USD all drifted lower. Price action and moves were largely well contained, and it appears markets are simply adjusting positions leading into a slew of central bank policy updates. Outside the RBA policy update today our attentions turn to the Bank of England and US Federal Reserve. The Bank of England’s MPC is slated to raise interest rates in a bid to control domestic inflationary pressures. With the domestic economic recovery so fragile there is real concern the move may disrupt the reclamation of robust economic growth and instead derail growth prospects. We are keenly attuned to the commentary surrounding the decision in a bid to understand future policy and longer run impacts of a broader monetary policy tightening. The Federal reserve is widely tipped to announce the beginnings of QE tapering. With domestic macroeconomic indicators softening through Q2 and Q3 thanks to the prolific spread of the Delta variant there is scope to suggest the Fed may adopt a more cautious monetary policy normalisation. A slower path to normality should help fuel demand across risk assets and underpin recent USD weakness.

Expected Ranges

  • AUD/USD: 0.7390 - 0.7590 ▲
  • AUD/EUR: 0.6410 - 0.6530 ▼
  • GBP/AUD: 1.8020 - 1.8320 ▼
  • AUD/NZD: 1.0380 - 1.0550 ▼
  • AUD/CAD: 0.9230 - 0.9350 ▼