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AUD continues to test new lows as USD index surges to 5 year high

Thursday 28 April, 2022

Daily Currency Update

The Australian dollar continues to test new lows despite a modest recovery in risk appetite. Equities and risk assets rebounded through trade on Wednesday, recouping some of Tuesday’s dramatic fall as markets seemingly try to take stock and reassess. The AUD edged toward intraday highs at 0.7190 through the domestic session following an upside surprise in quarterly CPI inflation. The headline figure showed prices jumped 5.1% year on year, well above market estimates, while core inflation jumped nearly 1.5% in the quarter and 3.7% year on year. Core inflation has always been the RBA’s preferred measure as it strips out those consumer items highly sensitive to price fluctuation. The 3.7% print is well above the RBA 2-3% target range and prompted markets to bring forward expectations for an RBA rate hike, pricing a 22-basis point adjustment next month. The RBA has been clear that it wants to see a material rise in wages before beginning its tightening cycle. Yesterday’s surprise to the upside puts greater pressure on policymakers to move earlier. Having touched intraday highs at 0.7190 the AUD found added support on optimism surrounding China’s COVID-19 predicament. Hopes an easing of strict lockdown protocols will limit the shock on the domestic growth outlook helped stabilise the CNY. The AUD failed to hold onto gains won during the domestic session tracking lower overnight. Broad-based US dollar strength and continued positioning ahead of the Fed’s expected monetary policy normalisation forced the AUD to touch intraday lows at 0.71 US cents. The AUD remains vulnerable to further downside having marked a series of lower lows in recent days and our attentions remain affixed to global bond rates and the broader risk narrative.

Key Movers

The US dollar continued to break new highs through trade on Wednesday with the DXY dollar index marking a new 5-year peak and pushing above 103 amid expectations for Fed monetary policy tightening and a brittle risk narrative. The recent USD surge has been underpinned by a collapse in the euro. The single currency marked a 5-year low overnight touching 1.0515 before moving back above 1.0550 to touch 1.0570. Reports Bulgaria has been the second country cut off from Russian gas supplies having refused to pay in Rubles drove gas futures higher. Prices exploded surging 30% at one point before correcting back and closing 10% higher on the day and 16% higher through the last 48 hours. While prices remain well below the peak made last month there are real concerns other countries will follow Poland and Bulgaria. Germany is heavily reliant on Russian gas supplies and with payment due in May refusal to pay in Ruble will only amplify the burgeoning energy crisis. Our attentions today turn to the Bank of Japan policy meeting. The JPY has given back gains enjoyed in recent days as the USD pushed back above 128 after a brief dip below 127. The steep fall in the JPY through the last month brings today’s meeting into sharp focus. While we expect policymakers will maintain the ultra-easy policy setting recent weakness in the yen could prompt an adjustment in forward guidance and the possible hint of future changes to yield curve controls. Maintenance of the status quo could prompt another run on the yen and drive dollar gains beyond recent highs.

Expected Ranges

  • AUD/USD: 0.7080 - 0.7220 ▼
  • AUD/EUR: 0.6720 - 0.6820 ▲
  • GBP/AUD: 1.7480 - 1.7730 ▼
  • AUD/NZD: 1.0850 - 1.0920 ▲
  • AUD/CAD: 0.9080 - 0.9190 ▼