AUD falters as China sets underwhelming growth target
Tuesday 7 March, 2023
Daily Currency UpdateThe Australian dollar retreated through trade on Monday amid an uptick in global rates and a disappointing Chinese growth forecast. Having found support through Friday amid a broader risk-on shift, the AUD failed to hold onto gains above US$0.6750 as investors digested reports China will set a 5% GDP growth target for 2023. After last week's record PMI print and the rapid rebound in economic activity following the removal of Covid restrictions, markets had hoped officials would set a more aggressive target. The softer goal should be easily beaten, but in setting a lower target, policymakers have dampened expectations for fiscal and monetary policy stimulus. Having slipped back toward US$0.6710 the AUD trades nearer $US0.6730 as attention turns to today’s RBA policy update and rate statement. We anticipate the RBA will issue another 25-basis points hike, lifting the underlying cash rate to 3.6%. With the move priced in, our focus will be on the accompanying commentary. Price action across rates has the peak cash rate moving above 4%, yet still sits well below other major central bank counterparts and significantly behind the US. Forward guidance and the pace of future hikes will prove key in determining the near-term direction and the maintenance of supports above US$0.6680.
Key MoversIn what was a relatively quiet start to the week, price action across majors was spurred by hawkish commentary from key ECB policymakers. With the US treasury retreating back below 4% on Friday, euro rates lifted as markets looked to adjust expectations for a peak ECB fund rate. Commentary from Belgian and Austrian board members suggests an additional three 50-point rate hikes will be needed if the bank is to control inflation and normalise prices. While the comments were countered by the board, more dovish members with a penchant for relying heavily on data markets were quick to lift expectations for the peak rate beyond 4% and toward 4.25%. With rates higher, the euro climbed up nearly half a per cent on Friday's close. With little else of note, our attention turns to commentary from Fed Chair Jerome Powell as he addresses the senate panel on Monetary Policy. Given the strong positive data seen through February, we anticipate Powell will adopt a more Hawkish tone when compared with his last panel appearance, underpinning expectations for US rates action and propping up the USD.
- AUD/USD: 0.6580 - 0.6830 ▼
- AUD/EUR: 0.6280 - 0.6380 ▼
- GBP/AUD: 1.7720 - 1.8020 ▲
- AUD/NZD: 1.0780 - 1.0950 ▲
- AUD/CAD: 0.9080 - 0.9220 ▲