Markets adopt a cautious tone and force AUD back below 0.74
Daily Currency UpdateThe Australian dollar slipped back below 0.74 US cents through trade on Tuesday, amid a softening in demand for risk. Investors appeared set on adopting a cautious tone, yet there is no obvious catalyst for the risk off vibe. Instead, it appears markets are consolidating positions following the surge in positive sentiment through the last 2 weeks. Having tracked sideways in the early part of the local session, the AUD jumped to intraday highs at 0.7470 after the RBA announced it would reduce the size of monthly bond purchases from $5bn to $4bn. The uptick was immediately reversed as investors scrambled to adjust expectations as the RBA announced they would maintain the reduced rate of bond purchase through until at least mid-February, removing previous expectations for a revision in November. The dovish tapering of QE supports prompted a modest sell off through the back end of the local session before the shift in risk demand and global backdrop drove the AUD toward intraday lows at 0.7380.
Our attentions turn now to the Bank of Canada for further central bank policy guidance and FOMC policymaker and New York Fed president Williams as he issues an update on the Fed’s economic outlook. We are keenly attuned to any shift in rhetoric following last week's soft payroll print and the likely impact on tapering plans.
Key MoversThe US dollar tracked higher through Tuesday, extending Monday’s recovery amid a broader risk off vibe. The dollar index advanced four tenths of a percent as the world’s base currency shifted upward against most major counterparts, particularly commodity led currencies. The CAD, AUD and NZD all fell steeply overnight, with the CAD notably the worst performer among major units, giving up almost a full 1% leading into today's Bank of Canada policy update. There appears little catalyst for the shift in risk demand. Given the pace and scale of the risk on recovery through the last fortnight, it appears investors are merely adopting a more measured and cautious approach through the start of the week, consolidating positions.
With last week's risk events behind us, our attentions remain affixed to shifts in broader market sentiment and changing global drivers. We expect as vaccination rates improve, and the global growth outlook recovers a broadly positive sentiment base should help cap USD gains, yet acknowledge ongoing supply constraints, rising inflation pressures and consistent pandemic driven uncertainty leave the door open to another risk off correction.
- AUD/USD: 0.7330 - 0.7470 ▼
- AUD/EUR: 0.6190 - 0.6290 ▼
- GBP/AUD: 1.8480 - 1.8920 ▲
- AUD/NZD: 1.0350 - 1.0450 ▼
- AUD/CAD: 0.9280 - 0.9380 ▲