AUD finds support as China relations thaw
Wednesday 12 April, 2023
Daily Currency UpdateThe AUD maintained a relatively narrow trading range through Tuesday despite a deluge of data. The AUD tracked between US$0.6640 and US$0.6680, edging marginally higher on the day amid reports that geo-political tensions between Australia and China are beginning to thaw. Hopes a review and removal of punitive tariffs imposed on Australian barley exports to China will pave the way to lift remaining sanctions that helped bolster demand for the AUD and underpin support on moves below US$0.6650. Improving relations with Australia’s most significant trading partner is key to driving medium- and long-term AUD direction and helped lift the AUD toward intraday highs just south of US$0.6680. Having found momentum through the latter half of the domestic session the AUD faltered as investors looked to sideline major bets ahead of tonight’s all-important US CPI update. While another 25-point rate hike is largely priced in for May, commentary from Fed policy makers is now more divided, with the most prudent course of action clouded by the recent banking sector instability. We anticipate a decline in headline CPI this evening, thus any sign price pressures haven’t peaked will likely prompt an outsized market response and weigh heavy on the AUD. We expect the AUD to remain range-bound leading into tonight’s print before tracking toward support (US$0.6580) and resistance (US$0.6780) within the current trading handle.
Key MoversThe US dollar retreated through trade on Tuesday as markets looked to square positions following the Easter break and leading into a key US CPI inflation update. With the USD drifting downward the euro, GBP and CAD all enjoyed modest gains while the JPY tracked sideways. Having enjoyed a boost in the wake of another robust US labour market print the USD faltered following a survey of small business conditions that showed tougher lending conditions, a decline in confidence, a fall in capital spending expectations and a downturn in hiring expectations. The survey supports a slew of recent headline data events that suggest activity is pitching toward recessionary levels. With commentary from Fed policy makers now mixed the outlook for monetary policy remains clouded. New Fed member Goolsbee proffered a dovish soundbite overnight, suggesting recent banking sector instability is equivalent to 25-75 points of fed tightening, warning policy makers should be conscious of raising rates too aggressively in this environment. Goolsbee’s comments contrast with New York Fed President Williams who suggested that another rate hike in May was a good starting point, acknowledging the inflationary impact on household budgets still remains elevated with core price pressures largely unchanged. Our attentions turn now to tonight’s all-important CPI update. A correction in inflation in line with expectations could amplify calls for the Fed to consider pausing its tightening cycle while an upside surprise and signal price pressures have not yet peaked will give the Fed license to extend this rate hike cycle fueling near-term USD upside.
- AUD/USD: 0.6580 - 0.6750 ▲
- AUD/EUR: 0.6050 - 0.6150 ▼
- GBP/AUD: 1.8480 - 1.8820 ▲
- AUD/NZD: 1.0680 - 1.0820 ▲
- AUD/CAD: 0.8920 - 0.9020 ▼