Wild swings as inflation data and Central bank updates drive volatility
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Daily Currency Update
It has been a wild 24 hours for the Australian dollar as domestic inflation data and Federal Reserve policy expectations drive wild swings in AUD value. Domestic CPI inflation data printed largely in line with expectations, while the trimmed mean measure wrote in lower than many analysts anticipated. Markets feared another upside surprise would force the RBA to lift rates one last time. Instead, the marginal easing in inflation pressures largely removed the risk of additional rate hikes allowing markets to prepare for a loosening of conditions through 2025. The AUD plunged below US$0.65 following the data print, marking lows at US$0.6480 before finding support. The AUD then surged back through US$0.65 and US$0.6550 after the US Federal reserve policy meeting. A softening in the Fed’s stance and signals it is focused on its dual mandate and not just inflation helped cement calls for an imminent policy change and a September rate cut is now fully priced in.Our attentions now turn to the Bank of England policy meeting, Chinese Caixin Manufacturing PMI’s and the US ISM manufacturing data for price action through trade on Thursday.
Key Movers
What a 24 hours! A deluge of key risk events drove action across majors through trade on Wednesday, headlined by the Federal Reserve Open Market Committee (FOMC) meeting and the Bank of Japan policy update. The Bank of Japan (BoJ) elected to raise rates by 15 basis points, lifting the underlying cash rate to 0.25% while laying out further plans to normalise its monetary policy platform and reduce bond purchase over the next 2 years. The yen lurched upward following the policy announcement, extending gains on comments from the BoJ Governor Ueda. Ueda said, that “we still have some distance to reach the neutral range”, suggesting additional rate hikes will follow. Japanese yields moved higher. In contrast, US treasuries fell after the Fed’s FOMC policy statement. Rates were unchanged but a shift in the tone elevated expectations for a rate cut in September. A softening in the Fed’s stance signals it is focused on its dual mandate and not just inflation helped cement calls for an imminent policy change. The USD is generally weaker, slipping below 150 against the yen while giving up 1.2850 to the GBP and allowing the euro to consolidate above 1.08.Our attentions turn now to the Bank of England policy meeting. The market is divided as to whether policymakers will cut rates by 25 basis points, while US manufacturing data could prove key in shaping US yield action.
Expected Ranges
- AUD/USD: 0.6480 - 0.6600 ▲
- AUD/EUR: 0.5950 - 0.6100 ▲
- GBP/AUD: 1.9500 - 1.9800 ▲
- AUD/NZD: 1.0950 - 1.1100 ▼
- AUD/CAD: 0.8980 - 0.9100 ▼