A softer USD and promise of China stimulus helps AUD power back above US$0.67
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Daily Currency Update
The Australian dollar advanced through trade on Thursday against the backdrop of a weaker US dollar. Risk sentiment improved, driving gains across equities and key industrial commodities, with iron ore and the London Metals Exchange both enjoying a 2% upswing. With the US dollar on the back foot and commodities well supported, the AUD outperformed, climbing back through US$0.67 to mark intraday highs at US$0.6752. While stronger against the USD, the AUD also outpaced most other major counterparts, pushing back toward 0.6080 against the euro, consolidating a break above 0.51 against the pound and holding above 1.0850 against the NZD.Our attentions turn now to US consumer sentiment numbers tonight, ahead of key China activity data released over the weekend. Comments from China President Xi helped support commodity demand yesterday, as he urged local governments to properly implement economic policy through the 3rd and 4th quarter to ensure China meets its annual development goals. The comments, combined with reports that officials are preparing to cut interest rates on more than $5 trillion of outstanding mortgages, sparked hopes the world’s 2nd largest economy will find renewed momentum leading into next year. China’s underperformance remains a significant headwind to AUD upside and an easing in growth concerns could help propel the AUD higher.
Key Movers
The European Central Bank cut interest rates overnight, reducing the benchmark cash rate by 25 basis points to 3.5%. Markets had priced in the move, instead looking to the post meeting statement for guidance on future policy direction. Officials staunchly defended the need to remain data dependent and would give no commitment as to which direction the ECB was leaning in October, but they did downgrade growth forecasts and slightly increase near term inflation expectations. While the growth outlook remains anaemic, inflation pressures linger and the market trimmed its expectations for rate cuts into the end of the year, with just 40 points of additional cuts now priced in. With rate cut expectation tempered, the euro jumped four tenths of a percentage point, climbing back through 1.1050 to mark intraday highs just short of 1.1075. With the ECB policy decision in the books, attentions turned to US PPI data and while we saw a marginal uptick in the quarterly core number, a downward revision of July numbers tempered any concern surrounding inflation and did little to force a change in market expectations ahead of next week's fed policy meeting. The US dollar closed the day weaker against most majors.Our attentions turn now to US consumer sentiment data ahead of a slew of Chinese activity metrics due at the weekend.
Expected Ranges
- AUD/USD: 0.6620 - 0.6820 ▲
- AUD/EUR: 0.6020 - 0.6120 ▲
- GBP/AUD: 1.9400 - 1.9600 ▼
- AUD/NZD: 1.0800 - 1.0900 ▲
- AUD/CAD: 0.9050 - 0.9150 ▲