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AUD unable to take advantage of improvement in risk sentiment

Wednesday 11 May, 2022

Daily Currency Update

A broad improvement in risk sentiment and a recovery across equity indices did little to help correct the recent AUD downturn. While the Nasdaq and S&P 500 both rebounded through trade on Tuesday there appears no obvious catalyst for the shift in sentiment outside a bear market rally and with little headline newsflow driving the shift in sentiment we expect investors will remain cautious through the near term. The undercurrent of uncertainty meant the risk rally across equities failed to spill over into currency markets and the AUD struggled to mount any real upward momentum bouncing between US$0.6910 and US$0.6980. Commodity currencies remain under pressure as fears the conflict in Ukraine and China’s lockdown extension will weigh on the global growth outlook well into H2 this year. With the AUD seemingly set to test a break below 0.69 US cents added pressure comes in the form of tighter monetary policy. Fed officials remain aggressive in their plans for monetary policy normalisation and while Fed Chair Jerome Powell ruled out a 75-basis point hike last week several key policymakers haven’t ruled out increasing the pace of rate hikes if inflation doesn’t moderate in line with expectations. Our attentions turn now to US CPI inflation data. With headline inflation expected to moderate and the annual rate of inflation contract to 8.1%, down from 8.5%, an outperformance could heighten calls for the Fed to move faster, pushing the AUD below supports at US$0.6915.

Key Movers

A correction in the risk narrative and rally across key equity indices failed to spill over into currency markets through trade on Tuesday with most majors maintaining a relatively narrow handle in the context of recent volatility. The US dollar enjoyed sustained support amid ongoing hawkish rhetoric from key Fed officials. Having ruled out a 75-basis point hike just last week, commentary from several key policymakers suggests a faster pace of monetary policy tightening may still be on the table. A failure to curb inflation in line with expectations could prompt the Fed to deliver a larger hike in the coming months and as such our attentions turn directly to tonight's all-important CPI inflation print. With expectations annual headline price pressures will have eased through April a shock to the upside could propel another run higher in short term US rates and fuel further USD upside. Having consolidated near 20-year highs, the DXY dollar index remains well bid through the near term. In the face of sustained USD strength, the euro edged back below US$1.0550 to touch lows at US$1.0530, while the British pound closed in on a break below US$1.23 and the Japanese yen held firm tracking between US$129.80 and US$1.3050 below recent highs above US$1.31.

Expected Ranges

  • AUD/USD: 0.6850 - 0.7030 ▼
  • AUD/EUR: 0.6550 - 0.6650 ▲
  • GBP/AUD: 1.7580 - 1.7850 ▼
  • AUD/NZD: 1.0980 - 1.1080 ▲
  • AUD/CAD: 0.8990 - 0.9080 ▲