AUD rallies yet fails again to break above US$0.68
Written by
Daily Currency Update
The Australian dollar regained last week’s momentum on Tuesday pushing off US$0.6760 and extending back toward resistance at US$0.68. With little of note on the domestic docket and no obvious catalyst driving the rally, the move comes on the heels of sustained US dollar softness and broader market repositioning following last week's Jackson Hole Symposium on monetary policy. With markets now pricing in a rate cut for September and 100 points of cuts through the end of 2024, the era of US dollar exceptionalism is over. The question now is, where to go next for the AUD? With cracks emerging in the US labour market analysts are torn as to whether the Fed will issue a 25 or 50-point cut when it meets next month, and all attention is on US labour market indicators with Jobless claims and US non-farm payroll key to shaping expectations. Another soft US payroll report next week could elevate expectations for a supersized 50-point cut and may be the catalyst to propel the AUD above US$0.68. While elevated against the USD the AUD was among the worst-performing majors giving up ground to the GPB, NZD, CAD and JPY while enjoying only a small 0.1% gain against the euro.Our attention now turns to the local monthly inflation print.
Key Movers
Newsflow was limited and tier-one data was absent through trade on Tuesday allowing markets to extend recent moves and drive the USD downward. The US DXY index fell a further 0.3% as US equities edged higher and 2-year treasuries moved lower. Markets largely ignored an improved US consumer confidence report as the rise in sentiment was attributed to expectations for lower interest rates while labour market indicators suggest further softening in employment conditions. With the USD on the back foot, the GBP outperformed while the CAD extended on Monday’s gains and the euro moved back toward US$1.12. The Great British pound has been among the best performers through the last 3 weeks as markets price in a near-term divergence in monetary policy. While the Fed has signalled a shift in focus away from inflation and toward protecting the labour market, preparing investors for a series of rate cuts into the end of 2024 the Bank of England in contrast has made it clear it does not yet believe the battle against inflation is over. Instead, it has signalled rates will remain higher for longer and markets have priced out a slower pace of easing with rates expected to stay at their current level until November. On the heels of this anticipated yield advantage, the pound has surged to a fresh 2-year high, extending above US$1.3260 overnight.Our attention now turns to Friday's US PCE index print ahead of next week all important payrolls report. With focus shifting to labour market performance the Fed’s preferred measure of inflation will prove key in shaping expectations for a 25- or 50-point cut.
Expected Ranges
- AUD/USD: 0.6680 - 0.6800 ▲
- AUD/EUR: 0.6020 - 0.6120 ▲
- GBP/AUD: 1.9350 - 1.9650 ▲
- AUD/NZD: 1.0820 - 1.0920 ▼
- AUD/CAD: 0.9100 - 0.9200 ▼