AUD finds support but not before making new 2 year low
Wednesday 13 July, 2022
Daily Currency UpdateThe Australian dollar opens marginally higher this morning as markets look to square recent USD gains and adopt a more measured tone leading into tonight’s all-important US inflation print. With little of note on yesterday’s domestic ticket attentions remained affixed to broader global headwinds. Reports China’s daily Covid case count is again on the rise and elevated fears Europe’s energy crisis will plunge the continent into recession weighed on investors appetite for risk and sent the AUD toward fresh two-year lows near 0.6710. Sustained downward pressure on key commodities did little to bolster AUD fortunes yet our embattled local unit found support, pushing back above 0.6750 to mark intraday highs at 0.6770 before edging lower into this morning’s open. There was little catalyst for the recovery, outside a simple USD re-positioning. Having made fresh 20-year highs the USD DXY index corrected lower as markets prepared for today’s inflation update. We anticipate another elevated read with inflation expected to remain high and close in on 9%. Another elevated read will afford the Fed justification for extending its aggressive interest rate adjustment and potentially force the AUD below 0.67 US cents, while evidence price pressures may be easing or at least in line with expectations may allow the AUD to momentarily break this bearish channel and extend back above 0.68 US cents.
Key MoversPrice action across major currencies saw the USD mark fresh 20 year highs and the Euro fall perilously to break below parity as markets adjust expectations for recession and a divergence in central bank monetary policy. The Euro tracked lower through the Asian session touching intraday and multi decade lows at 1.00003 allowing the USD DXY index to climb toward intraday and 20-year highs at 108.50. With the Euro poised to break below parity investors stepped in, rigorously defending a break below this key psychological handle and helping to mount a recovery back above 1.0050. With parity in sight the question is perhaps not if but when the Euro will break lower. Our attentions are affixed to July 21, where two critical risk events loom large. The ECB is set to meet and announce a 25 basis point rate hike, kick starting its tightening cycle. With the Fed hell bent on normalizing rates as quickly as possible ECB forward guidance and the path of future rate hikes within this cycle will be critical. The 21st also marks the day when the Nord Stream gas pipeline is due to be switched on again after scheduled maintenance. There are fears Russia will refuse to reinstate supply lines, further deepening Europe’s energy crunch and all but guaranteeing the introduction of electricity rationing, plunging the Euro well below parity.
In other news the Japanese Yen marked fresh 24 year lows as markets continue to price a widening in monetary policy expectations. With US and Japanese officials refusing to commit to currency intervention investors seemed bent on forcing the embattled Yen ever closer to 140.
Our attentions today turn to US inflation data as the key and critical item on tonight’s macroeconomic ticket.
- AUD/USD: 0.6680 - 0.6830 ▲
- AUD/EUR: 0.6650 - 0.6780 ▲
- GBP/AUD: 1.7480 - 1.7720 ▼
- AUD/NZD: 1.0980 - 1.1080 ▲
- AUD/CAD: 0.8750 - 0.8850 ▲