Daily Currency Update
The Australian dollar tracked lower through trade on Tuesday despite the RBA hiking interest rates by 25 basis points. Markets had largely priced in the rate adjustments and our attention quickly turned to the accompanying commentary and statement for guidance on future monetary policy movements. Policy makers adopted a much less hawkish tone when assessing the landscape for further tightening, affirming a commitment to responding to data sets and economic risks, noting further tightening may not be required to ensure inflation returns to target. Three-year bond rates fell 10 basis points following the policy update, while weaker Chinese import/export data prompted a risk-off move, forcing the AUD to give up 1% and slide back below US$0.6450 to mark intraday lows at US$0.6408 before finding support. Having tested a break above US$0.65 on Friday the AUD has been forced to pare back gains as markets adjust domestic rate expectations and the USD seeks to recover some of last week’s post-FOMC and non-farm payroll losses. With little of note on today’s macro ticket AUD direction will depend on whether markets maintain conviction in pricing out future Fed rate hikes. If supports above US$0.64, a consolidation between US$0.64 and US$0.6550 is possible.
Key Movers
The US dollar advanced through trade on Tuesday, partially unwinding last week’s losses, while a risk-off mood helped bolster demand for haven assets. Comments from Fed officials affirmed the FOMC’s commitment to bringing inflation back to the 2% target, maintaining the bank's tightening bias. While market pricing indicates there is less than a 10% chance of a December rate hike front-end US treasuries remained relatively stable. German industrial production fell for the fourth time in four months, while import and export data highlighted just how fragile the Chinese economic recovery is. With the euro sliding back below US$1.07 and the GBP giving up US$1.23, while the DXY index rallied. With little of note on today’s macroeconomic docket, our attentions remain affixed to central bank policy expectations. With the market seemingly unsure of whether it should follow through on pricing out further Fed rate hikes direction through the near term will depend on investors' level of conviction and guidance from key policy makers.
Expected Ranges
- AUD/USD: 0.6350 - 0.6520 ▼
- AUD/EUR: 0.5950 - 0.680 ▼
- GBP/AUD: 1.8900 - 1.9300 ▲
- AUD/NZD: 1.0780 - 1.0880 ▼
- AUD/CAD: 0.8780 - 0.8920 ▼