AUD extends recovery as markets price in more aggressive Fed rate cuts
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Daily Currency Update
The Australian dollar outperformed through trade on Tuesday buoyed by softer US data and an improvement in risk sentiment. US PPI data printed softer than anticipated accelerating front-end yield declines as markets price in a larger Fed rate adjustment before year-end. With the USD on the back foot the AUD pushed back through US$0.66 marking session highs just short of US$0.6640 and opening this morning at US$0.6631. The AUD has rebounded well since last week's flash crash. Focus has shifted back to near-term US rate expectations and the extended downward correction in US treasury yields. With risk sentiment recovering the AUD sits now on a much stronger footing yet remains vulnerable to shifts in the risk narrative. Softer commodity prices continue to weigh on the dollar while the risk of another JPY carry trade rebalancing leaves the door open for another downward correction.Our attention now turns to the US CPI data this evening. Another soft read should allow the Fed license to lower rates in September in response to a softening labour market and could help propel the AUD back toward US$0.67.
Key Movers
Softer than expected US PPI data drove a correction across the front end of the US yield curve yesterday driving the dollar lower against key majors. The DXY and BBDXY indices gave up over half a percent. With the Fed expected to commence its easing cycle next month US data remains front and centre. We can expect outsized reactions across currency markets as inflation and labour market data re-shape expectations surrounding the timing and trajectory of near-term rate adjustments. With the USD on the back foot, the GBP outperformed up 0.78%. The unemployment rate unexpectedly fell through the June quarter as strong employment growth helped push the underlying unemployment rate back to 4.2%, in contrast, wages fell with pay rises slowing in pace. All the data offered little to support a shift in current Bank of England pricing expectations and markets are still looking to November as the meeting where policy makers will cut rates. The GBP pushed back above US$1.28 and US$1.2850 and opened this morning at US$1.2870. In other news, the euro is also stronger up 0.6% while the dollar is weaker against the yen.Our attention now turns to US CPI data and UK headline inflation data key markers set to shape near-term rate expectations.
Expected Ranges
- AUD/USD: 0.6500 - 0.6700 ▲
- AUD/EUR: 0.5980 - 0.6080 ▲
- GBP/AUD: 1.9200 - 1.9500 ▲
- AUD/NZD: 1.0880 - 1.1020 ▼
- AUD/CAD: 0.9020 - 0.9120 ▲