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AUD rebounds on softer US inflation and optimistic China outlook

Wednesday 13 April, 2022

Daily Currency Update

The Australian dollar rallied through trade on Tuesday, edging back toward 0.75 US cents in what was another volatile overnight trading session. Having eyed a break below 0.74, the AUD tracked sideways through the domestic session before lurching back through 0.7450 to touch intraday highs at 0.7490 following a softer than anticipated US CPI print. While headline CPI rose in line with estimates, US core CPI inflation surprised to the downside rising only 0.3% in the month of March, well short of the 0.5% increase expected. The softer than anticipated print prompted a swift reaction across bond markets forcing 10-year treasury rates off highs above 2.8% yesterday to 2.72% this morning. The AUD found added support in a backdrop of stronger commodity prices, led by a 6% rally in oil and improved optimism around China and its COVID-19 zero policy. Reports officials may begin easing restrictions as the focus shifts toward the infection rate within the community. With some residents now allowed to leave home, there are positive signs lockdown laws are beginning to ease. This coupled with confirmation policymakers will take the necessary measures to support the Chinese economy has bolstered optimism and propelled a rally across key commodities. Having drifted off 0.7490 the AUD buys 0.7450 on open today. Our attentions turn to the RBNZ policy announcement for direction through the domestic session.

Key Movers

The NZD and AUD outperformed on the day as the USD gave back some ground amid the correction in 10-year bond rates while the euro was the day's big loser. The single currency eyed a break below 2-year lows toughing 1.0830 as reports peace talks between Ukraine and Russia had stalled. Russian President Vladimir Putin was reported as saying peace talks have reached a “dead end” and that Russia’s military operation would continue. With any hope of a near-term agreement for peace now quelled energy and supply chain pressures on Europe are expected to grow, placing an even greater strain on inflation expectations and hopes for a broader economic recovery. Our attentions today turn to the Bank of Canada policy decision where we expect they will raise rates by 50 basis points to 1% while UK CPI inflation is expected to increase and reach a 30 year high near 7%.

Expected Ranges

  • AUD/USD: 0.7380 - 0.7550 ▲
  • AUD/EUR: 0.6810 - 0.6930 ▲
  • GBP/AUD: 1.7350 - 1.7620 ▼
  • AUD/NZD: 1.0820 - 1.0920 ▲
  • AUD/CAD: 0.9350 - 0.9490 ▲