Home Daily Commentaries AUD tests a break above US$0.70 as optimism around China-led global growth recovery grows

AUD tests a break above US$0.70 as optimism around China-led global growth recovery grows

Daily Currency Update

The Australian dollar advanced through trade on Monday, again outperforming most major counterparts amid growing optimism that China’s ongoing pivot away from its Covid zero policy will boost the outlook for global growth. Having fallen agonizingly short of a break above US$0.70 last week the AUD surged through the domestic session breaking above the aforementioned psychological barrier to mark intraday highs at US$0.7020.

Having held the advance through the local session the AUD upswing faltered overnight as liquidity and volumes were thin as US markets remain closed in observance of Martin Luther King Jnr Day. Overnight selling pressure has seen the AUD retreat back below US$0.70 and sits just above US$0.6950 at time of writing.

Our attentions turn now to Chinese GDP data as a key marker and baseline from which any Chinese economic rebound post-Covid will be measured, while domestic labour market data will be key in determining near-term RBA monetary policy. With a 20-point hike priced in for February another robust labour market update will elevate calls for the RBA to maintain the pace of rate hikes as inflation remains sticky and consumer sentiment steady.

Having broken resistance at US$0.70 the next barrier sits just short of US$0.7050 with the August high of US$0.7137 another key technical marker to monitor.

Key Movers

Currency moves to start the week were relatively small as the AUD and JPY continued outperforming and maintaining 2023 trend lines. With US markets closed in observance of Martin Luther King Jnr Day liquidity lines and volumes remained thin through the overnight session. Early USD losses were unwound and we sit in much the same position this morning as we did on open Monday.

With little to note to drive discussion on Monday, our attention remains on broader 2023 themes. Increasing confidence US inflation has peaked has driven a correction in US rate expectations as markets prepare for a halt to US rate hikes come May. The correction across US and global rates have dampened demand for the USD, while a warmer winter across Europe has helped further ease energy prices. China’s move to exit its Covid zero policy has helped boost hopes for stronger than anticipated global growth.

With USD fortunes faltering our focus shifts to other key majors for upside opportunities. While the JPY suffered heavy losses through 2022, a correction in the global rate backdrop, a pivot in BoJ policy and expectations that yield curve controls will soon be abandoned have helped fuel a JPY resurgence. We are keenly attuned to tomorrow's BoJ outlook, Monetary policy statement and press conference for further guidance on near-term Bank of Japan monetary policy.

Expected Ranges

  • AUD/USD: 0.6930 - 0.7050 ▲
  • AUD/EUR: 0.6380 - 0.6460 ▲
  • GBP/AUD: 1.7320 - 1.7620 ▼
  • AUD/NZD: 1.0850 - 1.0950 ▼
  • AUD/CAD: 0.9250 - 0.9380 ▼