Home Daily Commentaries AUD edges back below US$0.63 as momentum squarely behind the USD

AUD edges back below US$0.63 as momentum squarely behind the USD

Daily Currency Update

The Australian dollar dropped back below US$0.63 overnight as markets continue to readjust expectations following the Fed’s latest policy offering. While the FOMC is expected to slow the pace of rate hikes next month, Fed Chair Jerome Powell’s messaging was overtly hawkish, suggesting the interest rate outlook will be higher for longer. US rates have surged in the aftermath, extending gains through trade on Thursday and dragging the US dollar higher. The AUD is down around 1% since this time yesterday having touched intraday lows at US$0.6270. While the AUD enjoyed a brief reprieve, marking highs north of US$0.65 through late October, momentum is again firmly behind the US dollar. Sustained uncertainty surrounding the global growth outlook, Chinese economic weakness, and a divergence in Fed and RBA near term outlooks will continue to weigh on the AUD and likely limit any significant upturn.

Our attentions turn now to the RBA’s Statement of Monetary Policy and US non-farm payrolls. While Tuesday’s RBA policy update has offered insight into forecast changes, guidance on inflation and GDP expectations remain key in determining near term RBA policy expectations. We anticipate employment growth will have slowed in the US, yet the US labour market remains remarkably resilient. That said, commentary from a number of key corporate analysts suggest the landscape may be changing. With Morgan Stanley and Amazon reportedly set to announce hiring freezes and staff cuts, a softening in non-farm payroll performance may help drive some AUD upside into the weekly close.

Key Movers

Momentum remains firmly behind the USD as fallout from the Federal Reserve’s latest hawkish policy offering fuels demand for the world’s base currency. The promise of higher rates and elevated risk aversion have helped propel the USD higher against a basket of major counterparts. The BB DXY index advanced three quarters of a percent through trade on Thursday and is now just 1.5% shy of its recent 18-year high. The Fed’s sustained hawkish outlook sits in stark contrast to the latest offerings proffered by other major central banks. The bank of England, while raising rates by 75 basis points, forecasts a significant contraction in GDP and a sharp downturn in inflation over the next three years. Bank of England Governor Bailey doubled down on the dovish tone, suggesting rates will rise less than is currently priced into financial markets. The Great British pound plunged in the wake of the BoE dovish statement, down nearly 2% and is the worst performing currency through the last 12 hours.

In other news, the euro is down around 0.7% under the weight of USD strength, while the JPY is trading back above 148 as the backdrop of rising rates again adds pressure on the Ministry of Finance to intervene.

Our attentions today turn to US non-farm payrolls as a key marker guiding direction into the weekly close.

Expected Ranges

  • AUD/USD: 0.6230 - 0.6420 ▼
  • AUD/EUR: 0.6380 - 0.6520 ▼
  • GBP/AUD: 1.7680 - 1.8020 ▼
  • AUD/NZD: 1.0870 - 1.0930 ▼
  • AUD/CAD: 0.8580 - 0.8720 ▼