AUD extends recovery as US dollar falls to lowest level since January
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Daily Currency Update
The Australian dollar extended its recovery through trade on Monday, bouncing back above US$0.67, amid improved risk sentiment and rising expectations for a Fed rate adjustment. An absence of headline news flow and major macro data saw markets extend last week’s recovery and double down on bets the Fed will announce its intentions to loosen monetary policy come September.Equities surged and risk assets rallied, while the AUD lurched back above US$0.67, marking intraday highs above US$0.6730. Having collapsed following July Non-farm payroll numbers, the AUD has slowly recovered losses and appears set on eyeing another break above US$0.6750. The recent recovery comes on the back of a softer dollar and resurgent risk narrative and while we expect the AUD will push toward US$0.68-0.70 before the year is out, near-term headwinds remain.
Iron ore and other key commodity prices remain under pressure, while China’s outlook shows little sign of short-term improvement and global tensions continue to escalate as the Ukraine counterattack into Russian territory and a break-down in peace talks between Israel and Hamas continue to weigh on risk sentiment.
With little of note on the global ticket, our focus shifts to the RBA minutes. We expect little new information and the minutes to reflect the post-meeting statement and commentary from Governor Bullock through last week. With major central banks running headlong toward looser policy conditions, the hawkish RBA outlook should help lift domestic yields and the AUD.
Key Movers
The USD fell through trade on Monday as US treasuries retreated and equities surged amid rising expectations for Fed rate cuts through September and into the end of the year. The DXY index fell to its lowest point since January and markets have now fully priced a 25-point rate cut come the September policy meeting, with calls growing for policymakers to issue a larger 50-point cut as cracks appear in the labour market.Fed focus has shifted in recent weeks with committee members moving away from a single focus on inflation and back toward its dual mandate and protecting labour market stability. Our attentions this week turn to the Jackson Hole Symposium on Monetary Policy where we expect Fed Chair, Jerome Powell, will acknowledge the need for a rate cut. With nearly 90 points of cuts priced into the end of the year, the USD is vulnerable to further downside risk, particularly as focus turns to the Democratic convention and the US Presidential race.
Gains the dollar made through July on the back of rising expectations former President, Donald Trump, would take back the White House have faded as Democratic Nominee, Kamala Harris, pulls ahead of Trump across key swing states. Looking beyond the near term, we expect the dollar will face headwinds as markets unwind yields and Fed rates are loosened. With a hotly contested US presidential race culminating in November, there is still plenty to drive volatility into the end of 2024.
Expected Ranges
- AUD/USD: 0.6600 - 0.6750 ▲
- AUD/EUR: 0.6020 - 0.6120 ▲
- GBP/AUD: 1.9200 - 1.9500 ▼
- AUD/NZD: 1.0950 - 1.1050 ▲
- AUD/CAD: 0.9120 - 0.9220 ▲