AUD remains under pressure as investors price in additional Fed rate hikes

Daily Currency Update

The Australian dollar tracked sideways through trade on Monday in what was a relatively quiet start to the week when compared with the tumult caused by another US data surprise on Friday.

With month-end approaching, investors appeared content in squaring positions and sidelining major bets ahead of key CPI and GDP data due later this week. With risk-off, the AUD tracked toward intraday lows at US$0.67, before finding some support and climbing back toward the daily open at US$0.6745 overnight.

Softer than anticipated US durable goods data coupled with reports the UK and EU have agreed to a new trade deal, which softens protocols surrounding the only shared border in Ireland, helped alleviate risk aversion and prop up the AUD.

Market attention remains affixed to near-term Fed policy expectations. With 3 hikes now priced in and a fourth more than likely, the AUD will need to weather a sustained run of downward pressure and could test supports approaching US$0.6680.

Domestic retail sales and current account data will provide valuable insight into domestic economic performance ahead of Thursday’s all-important inflation print. With inflation pressures refusing to ease, we expect some repricing of rate expectations and potentially the AUD in the wake of the CPI update.