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AUD beholden to US Interest rate expectations

Tuesday 11 January, 2022

Daily Currency Update

The Australian dollar shifted lower through trade on Monday as markets ramp up bets the US Federal Reserve will adopt an aggressive approach to monetary policy normalisation. Having tracked sideways through much of the domestic session the AUD edged off intraday highs at 0.72 US cents, touching lows at 0.7150. Investors firming expectations the Fed will raise rates four times throughout 2022 continue to underpin the US dollar, preventing the AUD from extending beyond its current narrow trading handle. With central bank policy dominating direction we anticipate the AUD will struggle to garner any real upward momentum throughout Q1 as the RBA continues to lag the Federal Reserve and the gap in monetary policy expectations widens. Our focus now turns to US CPI data Wednesday and commentary from Fed Chair Jerome Powell as key markers in driving policy expectations.

Key Movers

The US dollar advanced against risk assets and most major counterparts through trade on Monday as investors continue to price in a faster rate of Federal reserve Monetary Policy normalisation. Friday’s robust non-farm payroll report further bolstered expectations policy makers could raise rates as many as four times throughout 2022. Markets have priced in an 80% probability the FOMC will raise rates in March, with subsequent hikes following in June, September and now December. The promise of higher yields continues to drive USD demand propelling the dollar index near 16-month highs above 96, touching 96.23. Having broken resistance at 96 there is ample scope to suggest the dollar will maintain momentum through Q1, testing 97. The great British pound slipped back below 1.36 while the Euro tested a break below 1.13 before finding support into the daily close. Despite the alarming rise in COVID cases both domestically and around the world markets attentions remain affixed to central bank monetary policy expectations. Our focus this week shifts to commentary from Federal Reserve Chair Jerome Powell and US inflation data. Key markers in guiding interest rate expectations through 2022.

Expected Ranges

  • AUD/USD: 0.7050 - 0.7230 ▼
  • AUD/EUR: 0.6290 - 0.6350 ▲
  • GBP/AUD: 1.8820 - 1.9020 ▲
  • AUD/NZD: 1.0550 - 1.0650 ▲
  • AUD/CAD: 0.9050 - 0.9120 ▲