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AUD stumbles as RBA stubbornly maintains dovish tone

Wednesday 3 November, 2021

Daily Currency Update

AUD - Australian Dollar

The Australian dollar opens lower this morning, giving up over 1% following the RBA’s monthly policy announcement. Having touched intraday highs at 0.7530 the AUD fell steadily through the afternoon and overnight session as the RBA failed to meet market expectations and provide defined forward guidance on interest rate policy. Policymakers opted to leave the underlying cash rate on hold at 0.1% and while they chose to abandon the yield curve control program, they offered little to expect an interest rate hike will be brought forward. The RBA remains steadfast in its assessment of inflation and wage growth, reiterating its expectation inflation will not move significantly beyond its 2-3% target band until H2 2023 while wage growth is expected to remain stagnant through the foreseeable future. Having slipped below 0.75 US cents, the AUD slipped toward session lows at 0.7430. Our attentions turn now to the US Federal Reserve and its November FOMC policy update. An optimistic and hawkish Fed could prompt a correction in the recent risk on rally and highlight the divergence in monetary policy expectations, prompting a test of supports at 0.7430 and 0.7380.

Key Movers

A risk off tone enveloped currency markets through trade on Tuesday, moving in contrast with a sustained record-breaking gain across equities. The safe-haven USD and JPY outperformed as risk assets were driven lower. The NZD and AUD lead losses while the CAD and GBP also gave up some three tenths of a percent, while the EUR staved off any significant sell off, tracking sideways on the day. Our attentions turn now to the US Federal Reserve and Bank of England policy updates as key markers of divergence. Both have proffered relatively hawkish economic assessments. In particular, we are keenly attuned to any shift in fed policy following a significant position adjustment through October. The treasury curve has flattened as investors look to anticipate the timing of future rate hikes. With many expecting the fed will announce it will commence tapering QE support from December, the pace and speed of the tapering will be crucial as markets price in rates hikes, coinciding with the end of QE in the middle of next year. We are keenly focused on President Powell’s commentary and whether policymakers push back on rate hike expectations.

Expected Ranges

  • AUD/USD: 0.7380 - 0.7530 ▼
  • AUD/EUR: 0.6350 - 0.6490 ▼
  • GBP/AUD: 1.8080 - 1.8480 ▲
  • AUD/NZD: 1.0380 - 1.0480 ▼
  • AUD/CAD: 0.9170 - 0.9320 ▼