AUD dragged higher as expectations for a rate hike are brought forward

AUD - Australian Dollar

The Australian dollar advanced overnight amid a renewed demand for risk appetite and hopes monetary policy normalisation may run ahead of schedule. Having tracked sideways through much of the domestic session, the AUD was dragged back through 0.7750, after the Bank of Canada announced it would taper its bond buying program and announced it expected to begin raising interest rates at some point within the second half of 2022. While analysts had largely priced in the adjustment to bond purchases, the suggestion of a rate hike was largely unexpected and ahead of current forecasts.

The AUD touched intraday highs at 0.7761, as attentions now turn to the European central bank for further monetary policy guidance. With markets content on selling into rallies and buying the dip, we expect the AUD will remain range bound, bouncing between 0.7680 and 0.7830, unless a catalyst to drive a material shift in the current narrative emerges.

Key Movers

The Canadian dollar outstripped major counterparts on Wednesday, after the Bank of Canada surprised markets in announcing it expects conditions to be right for an interest rate hike in H2 2022. While analysts had already begun pricing in monetary policy normalisation, the somewhat hawkish commentary drove investors to bump up interest rate expectations. The Canadian dollar advanced 1% on the day, climbing off lows near 0.7910 to mark new highs at 0.8030.

Outside the CAD there was very little movement across the other major units. The GBP maintained a narrow handle bouncing between 1.3890 and 1.3950, while the euro pushed back against attempts to force it back below 1.20, bouncing between 1.20 and 1.2040.

Attentions now turn to the ECB monetary policy statement. We expect policy makers will maintain the current policy setting and defer any decision to correct the pace of bond purchases until June. A surprise correction and paring back of bond purchases, having frontloaded in March could provide the catalyst for price action across currency markets.

Expected Ranges

AUD/USD: 0.7680 - 0.7830 ▲

AUD/EUR: 0.6390 - 0.6580 ▲

GBP/AUD: 1.7880 - 1.8120 ▼

AUD/NZD: 1.0710 - 1.0790 ▼

AUD/CAD: 0.9620 - 0.9760 ▲