AUD edges back below US$0.63 as momentum squarely behind the USD

Daily Currency Update

The Australian dollar dropped back below US$0.63 overnight as markets continue to readjust expectations following the Fed’s latest policy offering. While the FOMC is expected to slow the pace of rate hikes next month, Fed Chair Jerome Powell’s messaging was overtly hawkish, suggesting the interest rate outlook will be higher for longer. US rates have surged in the aftermath, extending gains through trade on Thursday and dragging the US dollar higher. The AUD is down around 1% since this time yesterday having touched intraday lows at US$0.6270. While the AUD enjoyed a brief reprieve, marking highs north of US$0.65 through late October, momentum is again firmly behind the US dollar. Sustained uncertainty surrounding the global growth outlook, Chinese economic weakness, and a divergence in Fed and RBA near term outlooks will continue to weigh on the AUD and likely limit any significant upturn.

Our attentions turn now to the RBA’s Statement of Monetary Policy and US non-farm payrolls. While Tuesday’s RBA policy update has offered insight into forecast changes, guidance on inflation and GDP expectations remain key in determining near term RBA policy expectations. We anticipate employment growth will have slowed in the US, yet the US labour market remains remarkably resilient. That said, commentary from a number of key corporate analysts suggest the landscape may be changing. With Morgan Stanley and Amazon reportedly set to announce hiring freezes and staff cuts, a softening in non-farm payroll performance may help drive some AUD upside into the weekly close.