Stubborn RBA does little to dampen AUD recovery
Wednesday 2 February, 2022
Daily Currency UpdateThe Australian dollar recovery continued through trade on Tuesday, extending through 0.71 amid renewed demand for risk. Having tracked sideways through the early part of the domestic session, the AUD slipped below 0.7050 following the RBA’s first policy update for 2022. As expected, the RBA announced an end to its program of Quantitative Easing while increasing its inflation forecast and lowering unemployment expectations. The hawkish shift was welcome by markets and investors yet wasn’t enough to avoid an immediate short-term downturn. The bank remained stubbornly attached to its patient approach to interest guidance, refusing to bring forward projections for a future move off emergency level interest rates. The market's disappointment reflected in the move lower, however investors soon corrected higher, pushing the AUD through 0.71 overnight. Even if the RBA refuses to be drawn on bringing forward interest rate hikes, the market is still pricing in a series of rate adjustments, with 3- and 10-year bond rates quickly returning to pre-statement levels. With the RBA policy meeting behind us and risk demand returning, we have quickly recouped last week's sharp sell off and are now comfortably back within recent ranges, tracking between 0.70 and 0.73 US cents.
Key MoversThe US dollar weakened through trade on Tuesday, giving up last week's surge amid a broad recovery in risk demand. The NZD and AUD have been the primary benefactors of the rebound in risk demand, with the GBP another standout performer. Sterling advanced half a percent on the day, pushing back through 1.35 marking intraday highs at 1.3530. The euro failed to take advantage of US dollar softness, struggling to extend beyond 1.1280 as markets pair moves ahead of this week’s ECB policy announcement. German 2-year bonds advanced above the ECB deposit rate at -0.5% for the first time since 2015 as markets price in an increased likelihood the ECB will raise interest this year amid rising inflationary pressures. Attentions have shifted to Thursday’s ECB policy update as a key marker in governing expectations for a potential September rate hike.
- AUD/USD: 0.6960 - 0.7190 ▲
- AUD/EUR: 0.6250 - 0.6380 ▲
- GBP/AUD: 1.8925 - 1.9120 ▼
- AUD/NZD: 1.0680 - 1.0760 ▼
- AUD/CAD: 0.8950 - 0.9080 ▲