Home Daily Commentaries Aussie dollar trades back above 68 US cents

Aussie dollar trades back above 68 US cents

Monday 12 December, 2022

Daily Currency Update

The Aussie dollar traded above 68 US cents on Friday ending the week on the front foot with the price marching toward its strongest levels in three months. Risk appetite was elevated on Friday on the back of stronger-than-expected US PPI release on Friday set the stage for a further rebound in global rates, with the US 10-year rate rising 10bps to 3.58%. The easing of COVID-19 restrictions in China remains supportive of the recent recovery in the global risk sentiment. Furthermore, a fresh leg up in commodity prices provides an additional lift to the resources-linked Australian Dollar. It was announced on Friday the federal government will spend $1.5 billion on payments to reduce household and small business energy bills from April next year under a deal with the states to cap the price of coal and gas and help vulnerable customers. Speaking at an online press conference from Kirribilli House the Prime Minister Anthony Albanese said the bill subsidies were a better approach to cash handouts, which he said would add to inflation. The October 25 federal budget forecast a 56 per cent increase in electricity bills over the next two years and a 44 per cent increase in household gas bills over two years. Looking ahead this week and on Tuesday we will see the release of both the Westpac Consumer Sentiment and NAB Business Confidence. On Wednesday the Reserve Bank of Australia (RBA) Governor Philip Lowe is due to speak about at the AusPayNet Annual Summit, in Sydney. On Thursday all eyes will be on the Unemployment Rate released by the Australian Bureau of Statistics. The Jobless rate is expected to remain steady at 3.4%. Finally, on Friday we will see the release of the monthly Flash Manufacturing PMI.

Key Movers

On Friday U.S. producer prices rose slightly more than expected in November amid a jump in the costs of services, but the trend is moderating, with annual inflation at the factory gate posting its smallest increase in 1-1/2 years. The report from the Labor Department on Friday also showed underlying producer prices increasing at their slowest pace since April 2021 on a year-on-year basis. Consumers' one-year inflation expectations fell to a 15-month low in December, other data showed. As a result, we saw the S&P500 and NASDAQ both fall 0.7%. Last week saw a sizeable pullback in US equity markets, with the S&P500 off 3.4% and the NASDAQ 4%. A separate report from the University of Michigan showed its measure of consumers' one-year inflation expectations fell to 4.6% this month, the lowest reading since September 2021, from 4.9% in November. The survey's five-year inflation outlook was unchanged at 3.0% in December. Looking ahead this week and all eyes will be on the US CPI data released tomorrow night, with the market looking for another 0.3% m/m reading for core inflation. Last month’s downside surprise to core inflation sparked a wave of optimism that US inflation might have peaked, leading to a pullback in Fed rate expectations and contributing to the surge in risk assets. The Federal Reserve's two-day policy meeting this week is expected to increase by the cash rate by 50bps, a step down from the recent 75bps per-meeting pace. This would take the upper end of the target range to 4.50%.

Expected Ranges

  • AUD/USD: 0.6650 - 0.6850 ▲
  • AUD/EUR: 0.6350 - 0.6550 ▲
  • GBP/AUD: 1.7850 - 1.8050 ▲
  • AUD/NZD: 1.0450 - 1.0650 ▼
  • AUD/CAD: 0.9150 - 0.9350 ▼