AUD wavers as risk appetite falters

Daily Currency Update

The Australian dollar enjoyed varied fortunes through trade on Tuesday tumbling below key supports before recovering losses to open in much the same position. A tempering in risk demand had forced the AUD below US$0.71 a trend that continued through the Australasian session as softer than anticipated domestic retail sales prompted a correction across Australian short-term rates. Consumer spending fell sharply in December, down almost 4% raising concerns rising cost of living pressures and monetary policy tightening is starting to dampen economic growth prospects. Despite a bounce in Chinese PMI data, particularly across the service sectors risk appetite soured forcing the AUD toward intraday lows below US$0.70. Having touched sessions lows just south of US$0.6990 the AUD found support after US wage data fell further than anticipated. The US Employment Cost Index suggest wage inflation pressures have eased and indicate wage growth has peaked. The reduction in wage pressures is welcome news to the Fed and while to high acts as another indicator broader inflation challenges are abating. Sustained softening of inflation pressures has elevated expectations the Fed may pause future rate hikes, helping elevate risk demand through the overnight session and push the AUD back above US$0.7050.
Our attentions turn now to US ADP Non-farm employment data, manufacturing PMI and Job Openings while euro area CPI estimates and manufacturing PMI’s dominant the European docket. With critical central bank policy announcements due Thursday today’s data sets could prompt a last-minute change in expectations.