Daily Currency Update

AUD - Australian Dollar

Price action across currency markets was largely muted to start the week amid broader volatility across global equities, rates and ongoing energy market uncertainty. The AUD tracked between 0.7380 and 0.7435, unable to build on last weeks robust appreciation. The AUD fell steadily through the domestic session giving up 0.74 US cents amid a broader strengthening in global rates as investors look to adjust positions ahead of a forecasted tightening of central bank monetary policy. US 10-year yields extended beyond 1.6% to reach new highs at 1.62 before correcting lower into this morning’s open. Having found support at 0.7380 the AUD then worked to recoup the domestic session sell off, climbing back through 0.74 amid broader USD weakness.

Our attentions turn to today’s RBA policy meeting minutes. With rates moving higher across the yield curve and the promise of rising inflationary pressures casting a specter over the Australian economic recovery markets are re-pricing RBA monetary policy expectations. We now anticipate at least one rate hike by August next year and two hikes before 2023. We are keenly attuned to any shift in RBA rhetoric and a move away from their 2024 rate hike target.

Key Movers

The US dollar fell through trade on Monday, marking a fourth consecutive daily depreciation as the Euro found momentum and the Pound failed to build on Friday’s gains. Domestic macroeconomic data was mixed on Monday with industrial production falling thanks to the impacts of Hurricane Ida while confidence among the housing sector continues to improve. The Euro pushed back through 1.16 touching intraday highs at 1.1620 while the GBP fell back below 1.3750. Markets continue to bring forward estimates for a UK rate hike, with most now anticipating policy makers will raise rates as early as next month in an attempt to avoid rising inflationary pressures. With the UK economic recovery so fragile there is a real fear early monetary policy adjustment and a tightening of interest rates will only derail any post delta rebound and have little impact on controlling supply driven price increases. If we learnt nothing from the 1970’s stagflation crisis raising interest rates alone does little to control inflation. We are keenly attuned to any BoE rhetoric that hints as to what the MPC will do in November. Our attentions today turn to yearly UK CPI data as a key metric driving direction while commentary from key FOMC policy makers could provide further forward guidance ahead of the Fed policy meeting next month.

Expected Ranges