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AUD slips below 0.72 as expectations for US rate hike firm

Friday 7 January, 2022

Daily Currency Update

The Australian dollar has slipped back below 0.72 US cents as concerns surrounding rising inflation in the US and across Europe prompt investors to adjust monetary policy expectations. Having shifted off highs above 0.7270 following the Fed’s FOMC meeting minutes on Wednesday, the AUD continued to track lower, giving up 0.72 to touch intraday lows at 0.7150. Monetary policy expectations are now the driving force behind near term direction, as investors look to price in a swifter tightening of financial conditions as policymakers look to control rising inflation pressures. The promise of higher yields continues to fuel demand for the USD, while keeping AUD upside in check. Our attentions turn now to US non-farm payroll data Friday as a key marker of US labour market health. Another positive return in jobs growth will further fuel expectations for a March rate rise.

Key Movers

The US dollar advanced against its counterparts, except for the Canadian dollar and Japanese yen, through trade on Thursday, paring Wednesday’s early downturn and closing in on key technical supports. The Dollar Index extended its recovery back above 96 marking highs at 96.32 and eyeing a break toward 96.40. Investors are keenly attuned to resistance on moves approaching this handle, and a break above 96.40 could signal another upward run back toward the December high at 96.91. Near term momentum remains behind the USD as expectations for aggressive Fed policy action increase, drawing our attentions to two key data sets, today’s no- farm payroll print and Wednesday’s CPI inflation read. Leading indicators suggest the labour market continues to recover the impacts of the Delta variant, with analyst pricing in a robust uptick in jobs growth through December. A strong read should help drive USD upside into the weekly close and next week's inflation update. As highlighted in Wednesday’s minutes, controlling inflation is now a primary objective for the Fed and another high print will all but guarantee the FOMC will seek to tighten monetary policy faster than previously expected, shoring up bets for a March rate hike. Renewed USD strength pushed the EUR back below 1.13 while the GBP appears poised to again break below 1.35.

Expected Ranges

  • AUD/USD: 0.7070 - 0.7270 ▼
  • AUD/EUR: 0.6280 - 0.6420 ▼
  • GBP/AUD: 1.3420 - 1.3580 ▲
  • AUD/NZD: 1.0580 - 1.0650 ▼
  • AUD/CAD: 0.9050 - 0.9220 ▼