Dovish RBA commentary sees AUD weakest of major units through Tuesday

Daily Currency Update

The Australian dollar was the weakest of major currencies through trade on Tuesday, giving up 0.7% amid dovish commentary from RBA Governor Philip Lowe and a broader risk off tone. The AUD tracked sideways through the early hours of the domestic session, bouncing between 0.7360 and 0.7375 before comments from RBA Governor Lowe forced the currency through 0.7350. While maintaining an expectation the economy will rebound swiftly once lockdowns are removed, Lowe pushed back on market expectations for a rate hike in 2022 and H1 2023. Lowe was at pains to point out that it was “difficult to reconcile a rate hike with his central view that inflation and wages will rise slowly from here on out”. His comments forced investors to push back prospects for a normalisation of monetary policy and brings in to focus a widening gap in RBA policy outlook and that of other major central banks. Having found support at 0.7340 the AUD found a brief respite in softer than anticipated US CPI data bouncing back toward 0.7370 before a broader risk off tone sent the currency toward intraday lows at 0.7315.

Our attentions today remain with the broader risk narrative. The AUD remains vulnerable to sweeping changes in risk sentiment, and we expect will continue to track USD moves through the short term.