Home Daily Commentaries A new day, same old story; AUD test new lows in face of robust USD

A new day, same old story; AUD test new lows in face of robust USD

Thursday 1 September, 2022

Daily Currency Update

The Australian dollar shifted downward through trade on Wednesday, again giving up ground to the USD as risk assets remain under pressure and global rates continue to rise. US monetary policy expectations continue to drive direction, elevating US treasury yields and fostering sustained demand for the USD over commodity and risk correlated counterparts. With little of note on hand to drive direction through the domestic session, the AUD tracked sideways early before better than anticipated Chinese PMI data helped prompt a run back toward US$0.69. Having touched intraday highs at US$0.6904 the AUD fell steadily through the overnight session, unable to keep up with demand for the USD. Having broken below US$0.6850 the AUD marked new weekly lows at US$0.6837. The deterioration in the global growth outlook, downturn in commodity prices and elevated expectations for aggressive US monetary policy have weighed on the AUD since testing a break above US$0.71 just two weeks ago. The bearish shift sees the AUD caught in a downturn within which it continues to test new lows and is struggling to make headwind on short-run rallies. Our focus now turns to key US non-farm payroll data Friday. With the US labour market a critical pillar in guiding the fed’s uber-aggressive monetary policy platform, a warble in employment stability may force policy makers to take pause and consider a slower pace of monetary policy adjustment.

Key Movers

Price action across major currencies offered little to excite investors through trade on Wednesday, mirroring Tuesday’s trading pattern and maintaining a commitment to broader underlying market themes. US and European monetary policy expectations continue to dominate direction, driving global rates higher while forcing risk assets lower. The USD outperformed most counterparts despite a mixed macroeconomic data set. Preliminary employment data printed well short of expectations, while Chicago manufacturing activity printed flat. The miss on ADP employment data is the first chink in what has been an otherwise robust and steadfast labour market. A downturn in the more reliable Non-farm payroll print on Friday may ring alarm bells for policy makers banking on a strong labour market to steer the economy through elevated interest rates and rising living costs. The euro outperformed again as Euro Area CPI surged to fresh record highs, moving above 9% and surpassing median estimates. Elevated price pressures have prompted a shift in the European Central Bank (ECB) rhetoric, with key officials now suggesting an urgent and aggressive adjustment in monetary policy is required in order to curb ongoing increases in inflation. The shift in rhetoric has fueled expectations for ECB policy and driven a rapid upswing in European yields, with German 10-year rates up a staggering 72 basis points for the month. The surge in yields coupled with easing concerns surrounding gas prices and gas supply has allowed the euro to punch back above and maintain a break over parity, touching session highs at €1.0070. The pound struggles continue, marking new intraday lows and seemingly poised to break below £1.16. Expectations for inflation could exceed 20% have plunged the GBP into a deep bearish channel. Reports of a rising number of small business closures and a lack of government support in addressing the cost of living expenses paint a gloomy economic picture and likely spell more pain for the GBP ahead.

Expected Ranges

  • AUD/USD: 0.6780 - 0.6930 ▼
  • AUD/EUR: 0.6750 - 0.6880 ▼
  • GBP/AUD: 1.6820 - 1.7080 ▼
  • AUD/NZD: 1.1150 - 1.1250 ▲
  • AUD/CAD: 0.8950 - 0.9050 ▲