Risk aversion drives AUD back below US$0.65
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Daily Currency Update
A risk off mood enveloped markets overnight and drove the AUD back below US$0.65. After tracking between US$0.6510 and US$0.6550 for much of the local session, the AUD faced selling pressures overnight as analysts and investors looked to risk assets, amid rising concerns surrounding escalating tensions in the Middle East and larger than expected corrections in US manufacturing activity and jobless claims. The risk off tone drove the JPY, USD and CHF higher and forced the AUD toward intraday lows at US$0.6490.Our attentions turn now to US non-farm payroll data this evening for direction into the weekly close. With markets already pricing three Fed rate cuts through the back half of 2024, a print well below expectations will be needed to significantly shift consensus expectations and drive a wholesale AUD recovery back toward US$0.66. The AUD remains vulnerable to further risk aversion and a stronger than expected print could force a break below supports at US$0.6480.
Key Movers
There is plenty to digest this morning with the Bank of England leading headlines and electing to cut its benchmark interest rate by 25 basis points overnight. The market was divided as to whether policy makers would move to lower interest rates, and it appears the Monetary Policy Committee was itself at odds with a rate cut secured by the thinnest of margins, a 5-4 vote. Private sector wages and service sector inflation remain elevated and areas of concern for voting members. The UK recorded the highest post COVID inflation rate of any major economy, printing above 11%, and while prices have fallen quickly, policy makers are wary of unwinding restrictive policy too early and quickly. We expect a measured approach from the BoE and have priced just two more rate cuts before year end. The pound fell following the decision, sliding back toward 1.2750, while giving up ground to the euro, AUD and NZD as well.In other news, the US ISM manufacturing numbers printed below expectations, another sign the US economy is running out of steam, elevating calls for the Fed to be more aggressive in its monetary policy normalisation. Our focus now turns to US non-farm payrolls. The Fed have hinted at a shift in focus and the importance of sustaining stability within the jobs market. With inflation largely under control, a weakening labour force may prompt the Fed to move faster.
Expected Ranges
- AUD/USD: 0.6450 - 0.6600 ▼
- AUD/EUR: 0.5980 - 0.6080 ▼
- GBP/AUD: 1.9500 - 1.9800 ▼
- AUD/NZD: 1.0880 - 1.1020 ▼
- AUD/CAD: 0.8980 - 0.9120 ▼