AUD extends shallow recovery in face of risk off mood
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Daily Currency Update
The AUD extended its recovery through Tuesday edging another 0.3% higher despite a short and sharp risk off move. Fears the war between Russia and Ukraine will escalate to include the use of nuclear weapons forced investors toward haven assets, driving the AUD back below US$0.65 to intraday lows at US$0.6486. As tensions eased and a calm settled over markets analysts unwound risk off moves allowing the AUD to resume its short-run recovery. The AUD pushed back through US$0.65 edging higher through overnight trade to open just short of US$0.6535.Yesterday’s RBA minutes showed policy makers harbour lingering concerns their inflation forecasts are still subject to upside risks. Supply capacity, productivity growth and restrictive international trade policy continue to weigh on markets dampening the effectiveness of rate hikes. Of note were comments within the minutes that suggest the board is looking for “more than one good quarterly inflation outcome” before it considers reducing rates. While there is still some chance of a February rate adjustment hopes are fading and it is unlikely we will see a rate adjustment before May. The minutes helped boost longer run AUD rate expectations and are perhaps adding a floor beneath the AUD at a time when other major central banks build into easing cycles.
Today, our attention turns to China loan data, UK CPI numbers, euro area wage data, and US treasury performance.
Key Movers
There is plenty to digest this morning after a risk off move enveloped markets overnight. New Ukraine had fired a series of long-range missiles into Russia and reports President Putin had upgraded Russia’s nuclear doctrine enabling Russia to utilise its vast nuclear arsenals against non-nuclear states supported by nuclear powers. The fear of another escalation in tensions in Europe’s east pushed investors toward haven assets and cleaved through FX and equity markets. The USD and JPY lurched upward with the DXY index moving back through 106.50 before the Russian Foreign Minister helped assuage fears stating, “We are strongly in favour of doing everything possible not to allow nuclear war to happen”. As calm was restored to markets investors set about retracing the day's earlier moves and most majors opened this morning in much the same positions as yesterday. The Canadian dollar was the day's strongest performer up 0.33% following its CPI data print. Headline CPI rose faster than anticipated in October rousing doubts as to whether the Bank of Canada will apply another 50-point cut before year-end. Markets are now pricing a 30-point adjustment before year-end suggesting analysts are divided between a 25- and 50-point adjustment.Our attention now turns to UK CPI inflation data, euro Area wage data, and the latest US treasury auction.
Expected Ranges
- AUD/USD: 0.6400 - 0.6500 ▲
- AUD/EUR: 0.6100 - 0.6200 ▲
- GBP/AUD: 1.9300 - 1.9600 ▼
- AUD/NZD: 1.1000 - 1.1100 ▲
- AUD/CAD: 0.9050 - 0.9150 ▼