Home Daily Commentaries AUD tests break below US$0.66 as inflation pressures fall

AUD tests break below US$0.66 as inflation pressures fall

Daily Currency Update

The Australian dollar underperformed through trade on Wednesday following softer than anticipated inflation data and an extended risk off move. Yesterday’s Q1 CPI print wrote in below market estimates and the RBA’s projections, all but extinguishing the possibility of a rate hike next month. Headline price pressures rose slower than anticipated and core CPI data showed a moderation in the pace of annual price growth. After a robust labour market print earlier this month we half expected a strong inflation print would force policy makers to initiate another rate hike after April’s pause to the tightening cycle. With inflation pressures easing the RBA now has license to further assess economic performance and allow past rate hikes to filter into the economy. While inflation pressures remain uncomfortably high and future rate hikes remain on the table near term AUD upside is unlikely to be driven by the promise of further RBA tightening. Having given up US$0.66640 the AUD fell toward US$0.66 testing a break below this handle overnight as the weeks early risk off mood extended into Wednesday. With equities and risk assets all driven lower the AUD touched intraday lows at US$.6590 before finding support.

With little of note on today’s domestic macro ticket our attentions turn to US Q1 GDP estimates and unemployment claims ahead of PCE inflation data and employment cost metrics Friday for direction into the end of the week.

Key Movers

Despite an extension in the risk off narrative the USD is notably weaker this morning when measured against a basket of major counterparts. US First Republic Bank remains in the headlines with its stock price tumbling another 20% as markets continue to flee following weaker than anticipated Q1 earnings data. While most investors had moved on from the banking crisis that engulfed markets in March the ultimate demise of First Republic serve as a timely reminder that conditions within the US banking sector remain fragile. Equities attempted to stage a recovery but ultimately failed closing lower on the day while US treasuries rose. With the USD underperforming the EUR and GBP made up ground with the Euro falling just short of a break above 1.11, marking 12-month highs at 1.1095 before profit taking prompted a correction back below 1.1050. Sterling followed a similar trajectory punching above 1.25 before correcting lower to trade nearer 1.2470 on open this morning. With the CAD weaker following softer oil prices and the JPY bolstered by the risk off mood our attentions turn to key US employment data and GDP estimates for direction through Thursday.

Expected Ranges

  • AUD/USD: 0.6580 - 0.6720 ▼
  • AUD/EUR: 0.5630 - 0.6050 ▼
  • GBP/AUD: 1.8680 - 1.9020 ▲
  • AUD/NZD: 1.0750 - 1.0850 ▼
  • AUD/CAD: 0.8950 - 0.9050 ▼