Home Daily Commentaries AUD rallies amid downturn in US manufacturing activity and UK policy u-turn

AUD rallies amid downturn in US manufacturing activity and UK policy u-turn

Daily Currency Update

The Australian dollar rallied through trade on Monday as risk assets and commodity currencies lurched upward following a reversal in UK Fiscal stimulus plans and a softer than anticipated US manufacturing print. Global rates tumbled after UK chancellor Kwarteng unsurprisingly walked back plans to abolish the countries top tax rate. When reviewed in the context of the total tax cut proposal the abolition of the 45% tax threshold was never a significantly costly measure. It was however, hugely symbolic and indicative of just how ill directed, out of touch and misguided the Truss governments new policy framework was. The reversal in policy helped ease tensions and allowed the AUD to recover near 2% on the day climbing back above US$0.65 to mark intraday highs at US$0.6520.

Our attentions turn now to today’s RBA policy update. Momentum for another 0.50 basis point hike has built through the last 30 days as persistent signs of inflation and a robust labour market support a sustained and aggressive tightening of financial conditions. Key today will be how the RBA signals or justifies any future slowdown in the pace of future hikes. Governor Lowe and Key policy makers have alluded to step down to 0.25 basis point rate amendments. A dovish response from the RBA could weigh on the AUD and sit in contrast to the significant global tightening.

Key Movers

The Great British pound again dominated price action across major currencies through trade on Monday, surging as UK Chancellor Kwarteng walked back plans to abolish the 45% tax threshold. Sterling advanced a further 1% on the day and surprisingly has recouped all losses suffered in the wake of the mini-budget announcement. Having surged back above 1.13 Sterling touched intraday highs at 1.1325 and currently buys 1.1319.

The US dollar fell to start the week following a deeper than expected downturn in manufacturing activity. The ISM manufacturing index fell to its lowest level since mid-2020 and appears poised to move into contractionary territory as consumers adjust their spending patterns, moving away from manufactured goods and back toward services. While a change in spending patterns was always due as the economy rebalances after the pandemic the concern for the US economy is a shift in inflationary pressures away from manufactured goods and into the services sector. Persistent economic wide inflation will be key in shaping near term Fed policy expectations and our attentions turn to ISM services data and Non-farm payroll data this week as key markers of direction.

Expected Ranges

  • AUD/USD: 0.6380 - 0.6630 ▲
  • AUD/EUR: 0.6480 - 0.6720 ▲
  • GBP/AUD: 1.6980 - 1.7520 ▼
  • AUD/NZD: 1.1280 - 1.1480 ▼
  • AUD/CAD: 0.8820 - 0.8920 ▲