Australian dollar outperforms ahead of all-important inflation update
Daily Currency Update
The Australian dollar strengthened through trade on Tuesday, pushing back above and holding onto moves above US$0.6350. As other major currencies set about giving back yesterday’s gains the AUD outperformed following commentary from new RBA Governor Michelle Bullock. Speaking last night, the new Chair highlighted the interconnected nature of full employment and inflation objectives. While there was little groundbreaking shift in RBA policy Bullock did confirm that “the board will not hesitate to raise the cash rate further if there is a material upward revision to the outlook for inflation”. With Q3 inflation figures scheduled today, Bullock's comments served as a reminder of the importance of the inflation narrative in shaping RBA policy. Market pricing for a November rate hike moved higher, lifting the AUD to intraday highs just shy of US$.6380. While the AUD has slipped back to open just above US$0.6350 the prospect of at least one more rate hike before March 2024 should help add a floor underneath the AUD.Our attentions today are squarely affixed to Q3 inflation numbers, a key release ahead of the Melbourne Cup Day rate announcement. The consensus is for year-on-year inflation to move lower but remain well above the RBA’s 2-3% target. With services inflation proving sticky, any signal price pressures are becoming entrenched could prove a catalyst to drive rate expectations higher and propel the AUD toward US$0.64.
Key Movers
There is plenty to digest this morning as PMI data helped drive direction through trade on Tuesday. The data served to highlight the gap between the US and Europe with eurozone composite PMIs falling, marking their steepest contraction since November 2020. With manufacturing deeply entrenched within a contractionary trend and services data disappointing the euro slipped back below US$1.06, giving up 0.7%. With UK PMI data sluggish the pound gave up ground as well, allowing the USD DXY index to unwind Monday’s decline and climb back toward 106.30. with US PMI data stronger than expected the gap between the US and Europe is only expected to widen, underpinning USD strength.In other news reports China’s legislature has approved a rare-mid-year budget expansion that will allow an increase in the fiscal deficit and injection of 1 trillion yuan into disaster relief and construction projects. The promise of greater Chinese domestic spending helped improve risk demand while President Xi looked to sure up confidence in the economy and financial system by visiting the People's Bank of China and State Sovereign Fund.
Our attention today turns to Australian CPI data and the Bank of Canada policy update.
Expected Ranges
- AUD/USD: 0.6280 - 0.6420 ▲
- AUD/EUR: .55920 - 0.6050 ▲
- GBP/AUD: 1.9000 - 1.9400 ▼
- AUD/NZD: 1.0780 - 1.0920 ▲
- AUD/CAD: 0.8670 - 0.8820 ▲