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AUD consolidates gains on pullback in US bond rates

Thursday 31 March, 2022

Daily Currency Update

The Australian dollar tracked sideways through trade on Wednesday bouncing between 0.7505 and 0.7535. Having enjoyed a period of extreme volatility since the outbreak of conflict between Russia and Ukraine, markets appeared to take stock consolidating recent moves across equities, bond yields and currencies. While optimism surrounding recent peace talks faded, the AUD remained well-bid, bolstered by sustained and elevated key commodity prices and a broadly weaker USD. A pullback in US bond yields has helped sustain the AUD’s extension above 0.75 with resistance forming on moves approaching 0.7540/50. With little of note on today's macroeconomic ticket, our attentions turn to Chinese PMI data, expected to soften given extensive lockdowns across key provinces and US PCE data, the Fed’s preferred measure for inflation. With expectations that the PCE deflator index will hit 5.5%- its highest level in over 40 years, we are keenly attuned to any response from Fed officials and the possible impact on interest rate expectations as yields continue to be a key factor in driving direction.

Key Movers

The US dollar was broadly weaker through trade on Wednesday as a pullback in US bond yields and an elevated inflation print in Germany and Spain prompted euro gains. The Dollar Index fell for a second consecutive session as the euro rallied toward its highest level in almost a month, breaking above 1.1150 to mark intraday highs at 1.1155. Annual inflation in Germany and Spain comfortably surpassed market expectations and fueled a rise in bond rates and ECB policy expectations. German 2-year bund rates pushed back into positive territory for the first time in 7 years while markets adjusted expectations for ECB rate hikes, pricing a 60-basis point increase before year-end. With the US bond rate retreating, the euro outperformed its major counterparts while the yen extended its recovery following the week's earlier sell-off. Having touched 125, the USD fell back below 122 where it now buys 121.79 yen. Our attentions today turn to US core deflator data, a key measure of inflationary pressures, ahead of tomorrow’s all-important US non-farm payroll print.

Expected Ranges

  • AUD/USD: 0.7450 - 0.7550 ▲
  • AUD/EUR: 0.6680 - 0.6820 ▼
  • GBP/AUD: 1.7380 - 1.7620 ▲
  • AUD/NZD: 1.0720 - 1.0850 ▼
  • AUD/CAD: 0.9320 - 0.9420 ▼