Aussie dollar falls below 67 US cents
Monday 19 September, 2022
Daily Currency UpdateThe Australian dollar finished the week trading below 67 US cents on modest USD strength. On Friday the AUD/USD pair reached a year-to-date (YTD) low at 0.6670, accumulating weekly losses of more than 2%, spurred by investors positioning ahead of further Federal Reserve aggressive tightening, underpinning the greenback. The Reserve Bank of Australia (RBA) Governor Philip Lowe said that the bank is committed to returning inflation to the 2-3% bank target over time but trying to achieve it, without damaging the economy. Furthermore, Lowe added that at some point, the RBA would hike in 25 bps increments, adding that they’re getting closer to that point, even opening the door for discussions of 25 or 50 bps in the next meeting. Overall sentiment has been bearish in the markets, hitting US stocks and commodities, but also weakening commodity-linked currencies such as the AUD or NZD.
On the data front this week on Tuesday the Reserve Bank of Australia (RBA) will release the Monetary Policy Meeting Minutes which will provide a detailed record of the RBA Reserve Bank Board's most recent meeting, providing in-depth insights into the economic conditions that influenced their decision on where to set interest rates. On Wednesday the Melbourne Institute will release the monthly MI Leading Index which looks at 9 economic indicators related to consumer confidence, housing, stock market prices, unemployment expectations, hours worked, commodity prices, and interest rate spreads. On Friday we will see the release of the Manufacturing Purchasing Managers' Index (PMI) a survey of about 400 purchasing managers which asks respondents to rate the relative level of business conditions including employment, production, new orders, prices, supplier deliveries, and inventories.
Key MoversOn Friday in the United States, the University of Michigan (UoM) Consumer sentiment survey in September slightly improved but missed estimations of 60.0. The Consumer Sentiment rose by 59.5 vs. 58.6 in the prior month, while inflation expectations in a 1-year horizon slumped to 4.6% from 4.8% in August. The week ahead is likely to be dominated by a trifecta of major central bank meetings the US Federal Reserve, Bank of England, and Bank of Japan (BoJ) all meeting on Thursday. Even though inflation expectations are lower, market participants have fully priced in a Fed’s 75 bps rate hike in the September meeting. Everything points to another 75 basis-point rate hike by the Fed taking the cash rate to 3.25%. The likelihood that it will have to go ‘big’ again in November is elevated, too. The Bank of Japan will also meet on Thursday amidst the recent sharp fall in the JPY which has seen speculation mount that the Ministry of Finance could intervene in the currency market or the BoJ amend its Yield Curve Control policy to allow for a more upward adjustment in Japan bond rates. The Bank of England’s rescheduled meeting (delayed for a week due to the Queen’s passing) is more uncertain, with most economists looking for a 50bps hike but the market slightly leaning towards a 75bps move.
Equity markets were weaker again on Friday, not helped by a bleak earnings update from US package delivery company FedEx. FedEx shocked the market with much weaker earnings ($3.44 vs. $5.10 expected) and withdrew its full-year guidance, blaming worsening “macroeconomic trends. The S&P500 was lower by 0.7% on Friday, having been down as much as 1.6% at one point, while the EuroStoxx 600 index was down 1.6% on Friday.
- AUD/USD: 0.6600 - 0.6800 ▼
- AUD/EUR: 0.6600 - 0.6800 ▼
- GBP/AUD: 1.6900 - 1.7100 ▲
- AUD/NZD: 1.1100 - 1.1300 ▲
- AUD/CAD: 0.8800 - 0.9000 ▼