AUD rallies amid downturn in US manufacturing activity and UK policy u-turn

Daily Currency Update

The Australian dollar rallied through trade on Monday as risk assets and commodity currencies lurched upward following a reversal in UK Fiscal stimulus plans and a softer than anticipated US manufacturing print. Global rates tumbled after UK chancellor Kwarteng unsurprisingly walked back plans to abolish the countries top tax rate. When reviewed in the context of the total tax cut proposal the abolition of the 45% tax threshold was never a significantly costly measure. It was however, hugely symbolic and indicative of just how ill directed, out of touch and misguided the Truss governments new policy framework was. The reversal in policy helped ease tensions and allowed the AUD to recover near 2% on the day climbing back above US$0.65 to mark intraday highs at US$0.6520.

Our attentions turn now to today’s RBA policy update. Momentum for another 0.50 basis point hike has built through the last 30 days as persistent signs of inflation and a robust labour market support a sustained and aggressive tightening of financial conditions. Key today will be how the RBA signals or justifies any future slowdown in the pace of future hikes. Governor Lowe and Key policy makers have alluded to step down to 0.25 basis point rate amendments. A dovish response from the RBA could weigh on the AUD and sit in contrast to the significant global tightening.