AUD extends upturn as USD sell off continues into new week
Tuesday 10 January, 2023
Daily Currency UpdateThe Australian dollar upturn continued through trade on Monday, extending beyond US$0.69 to mark fresh 5-month highs. Analysts largely ignored a downturn in domestic new building activity and instead focus remains affixed on easing Chinese Covid restrictions and a broadly weaker US dollar. Hopes China is moving closer to rejoining the post-Covid global economy were boosted as officials further eased quarantine restrictions for arriving visitors.
Risk appetite enjoyed a mid-session boost as commodities found support and the AUD catapulted to highs just shy of US$0.6950 at US$0.6948. Despite edging marginally lower into this morning’s open markets largely consolidated intraday gains overnight amid sustained US dollar weakness. Further analysis of Friday’s Non-Farm payroll data and a downturn in earnings data amplified calls for Fed officials to consider slowing the pace of monetary policy adjustment.
With most commentators pricing in a 50-point hike, the correction in earning power has prompted some analysts to consider a smaller 25-point adjustment. Having settled near US$0.6930 our attentions turn now to commentary from Fed Chair Jerome Powell ahead of key domestic inflation Wednesday and US CPI inflation data Thursday as key markers for direction through the week ahead.
Key MoversThe US dollar fell against most counterparts through trade on Monday as fallout from Friday’s non-farm payroll and ISM service PMI prints continues to drive direction. Despite relatively robust job creation, a downturn in average hourly earnings and a contraction in service activity has amplified calls for a slowdown in the pace of Fed Monetary Policy adjustment.
The contraction in Services PMI offers a clear signal previous Fed rate hikes are beginning to bite and offer some suggestion economic activity is beginning to slow. With most analysts still pricing in a 50-point rate hike at the next FOMC policy meeting our focus turns now to Fed Chair Jerome Powell for any hint or signal policymakers are preparing to slow the pace of policy adjustment while inflation/CPI data Thursday remain key in driving near term direction.
Having fallen short of expectations in December, another downturn in inflation pressures could elevate calls for a slower more measured approach to interest rate adjustment and weigh further on the USD. The Euro and GBP benefited from the US dollar downturn edging higher and testing resistance near 1.07 and 1.22. With little note on their respective macro tickets key US data points will continue to drive direction into the end of week.
- AUD/USD: 0.6780 - 0.6980 ▲
- AUD/EUR: 0.6380 - 0.6500 ▼
- GBP/AUD: 1.7480 - 1.7680 ▲
- AUD/NZD: 1.0780 - 1.0880 ▲
- AUD/CAD: 0.9180 - 0.9300 ▲