AUD steady ahead of ECB policy update
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Daily Currency Update
The Australian dollar edged higher through trade on Wednesday amid a broad-based USD sell-off and stronger-than-expected Chinese Services data. There was little market reaction to domestic GDP data, wherein Q1 growth confirmed activity continues to run below trend, elevating calls for an RBA rate cut. RBA Governor, Michele Bullock offered little in the way of insight into RBA policy thinking when she addressed a Senate Estimates Committee, affirming the board's commitment to keeping rates steady until they are confident inflation is heading back to target. Bullock refused to rule out further rate hikes stating “We are on a narrow path…we are not ruling anything out”. Having touched highs just north of US$0.6663 toward the end of the local session, the AUD consolidated gains on stronger China services data before drifting lower through overnight trade and touching session lows below US$0.6630 after a better-than-anticipated US ISM services print. The headline rise in the ISM index was well above consensus estimates and drove knee-jerk USD gains before markets adopted an abrupt about-face, reversing gains and driving the USD lower on the day. Having clawed its way back toward US$0.6650 the AUD opens this morning buying US$0.6651.Our attention now turns to the ECB policy meeting. We expect policymakers to join the central banks of Canada, Sweden and Switzerland in cutting rates and are keenly attuned to any indication of the timing and trajectory of future hikes.
Key Movers
There have been some big moves across G10 currency markets through the last 24 hours with the Bank of Canada joining the Swedish Riksbank and Swiss National Bank in cutting rates and entering an easing cycle. As widely expected, the Bank of Canada cut its policy rate by 25 basis points to 4.75%. Bank of Canada Governor, Tiff Macklem said, “we have come a long way in the fight against inflation and our confidence that inflation will continue to move closer to our 2% target over the months ahead” adding “it is reasonable to expect further cuts to our policy interest rate”. Markets were quick to adjust expectations pricing two additional rate cuts through the end of the year (likely September and December). The CAD fell against the USD and is lower than most major counterparts except the yen. The Japanese yen was the day's big loser, down nearly 1%. A downside miss in the Bank of Japan’s (BoJ) preferred measure of wages for April forced markets to adjust expectations for BoJ policy. Our attentions are now squarely affixed on commentary from BoJ board member, Toyoaki Nakamura. Nakamura is speaking in Sapporo and we are keenly attuned to any signal that may suggest the BOJ is setting up for a reduction in Bond purchases next week.JPY slippage and CAD downside saw the USD DXY index climb on the day but stay flat against the euro, GBP, AUD and lower against the NZD.
Our attention now turns to the European Central Bank policy meeting tonight.
Expected Ranges
- AUD/USD: 0.6580 - 0.6720 ▲
- AUD/EUR: 0.6080 - 0.6180 ▲
- GBP/AUD: 1.9100 - 1.9350 ▲
- AUD/NZD: 1.0700 - 1.0800 ▼
- AUD/CAD: 0.9080 - 0.9150 ▲