AUD consolidates weekly gains, breaking above 0.71

Daily currency update

The Australian dollar climbed above 0.71 US cents through trade on Thursday, consolidating Wednesday’s post US inflation uptick. An absence in headline newsflow and meaningful data points allowed investors to review and process Wednesday’s CPI surprise, adjusting positions and expectations for Fed policy. Key equity indices rallied and demand for risk improved, propelling the AUD toward intraday highs above 0.7130.  Having edged lower into this morning’s open, the AUD now buys 0.7104 US cents. With little of note on today’s macro ticket our attentions remain with the broader risk narrative and further amendment in USD projections. Volatility across treasury rates will likely drive direction into the weekly close. The AUD continues to face significant headwinds and this weeks US inflation print has done little to change our broader global macroeconomic outlook. In the absence of an improvement in growth forecasts, AUD upside will be limited and closely correlated with US dollar fortunes. With the Fed steadfast in their commitment to controlling inflation we expect little change in the policy outlook in the near term. However, a sustained decline in price pressures and contraction in rate expectations could open the door to a broader US dollar depreciation, as the spectre of recession looms large.

Key movers

Price action calmed through trade on Thursday as most majors maintained a larger narrow trading handle, with investors continuing to digest Wednesday’s CPI surprise and its implications for Fed policy. The immediate Fed response suggests they are committed to the current program of monetary policy adjustment, affirming reports inflation, particularly core inflation, remains far too high. San Francisco Fed President Mary Daly told the Financial Times “We are not near done with tightening yet”. Despite the hawkish sentiment, Daly did concede her baseline was for an easing in the pace of rate hikes, reducing expectations for a 75-point lift in September. Since the inflation print, markets have pared back hopes for a 75-basis point hike, pricing just a 40% likelihood, down from over 80% prior to the CPI surprise. With markets amending rate expectations, the USD consolidated Wednesday’s 1% decline, giving up a further 0.1% against a basket of major counterparts, as the euro eyed a break above 1.0350 and the sterling held firm above 1.22. With little of note on today’s ticket our attentions remain with the broader risk narrative and volatility across global rates as key markers driving direction into the weekly close.

Expected ranges

• AUD/USD: 0.6980 – 0.7150 ▲
• AUD/EUR: 0.6780 – 0.6920 ▲
• GBP/AUD: 1.7020 – 1.7280 ▼
• AUD/NZD: 1.1020 – 1.1080 ▼
• AUD/CAD: 0.8980 – 0.9120 ▲