AUD jumps back above 0.70 amid broad USD sell off

Daily currency update

The Australian dollar advanced through trade on Thursday, climbing back above 0.70 US cents amid shifting US growth expectations and elevated inflation fears. Having opened near 0.6950, the AUD found support following stable employment conditions consistent with a tightening labour market. While softer than expected, a largely stable participation rate and the addition of 4,000 new jobs through April prompted a decline in the underlying unemployment rate to 3.9%, the lowest level in almost 50 years. With the labour market operating at near capacity, following falls in the underutilisation and underemployment rate, there is now an expectation wage growth will pick up. While not evident in Wednesday Q1 wage growth data, the conditions support a modest improvement in pay conditions, removing a barrier to tighter monetary policy and elevating expectations the RBA will accelerate the pace of rate hikes. Having edged above 0.70, the AUD extended its recovery toward intraday highs at 0.7060. Broad US dollar weakness dominated the overnight session, as fears elevated inflationary pressure will prompt a downturn in US economic growth through H2. US treasuries moved lower, prompting notable USD softness and allowing the AUD to consolidate a recovery off recent lows. Having come under sustained pressure through the last month, a correction in US growth expectations and moderation in Fed expectations could provide a catalyst to propel the AUD back toward 0.75 US cents.

Key movers

The US dollar dominated direction through trade on Thursday, giving up ground to all major counterparts amid rising fears inflation pressures will derail the pandemic recovery and dampen growth prospects through the months ahead. Wednesday’s inflation reality check forced investors to reassess expectations for US economic growth, as signs sustained inflation will manifest itself in a broader economic slowdown, particularly across key retail markets. The dollar gave up an average of 1% against key counterparts, allowing the euro to punch back through 1.06, the pound to push above 1.25 and the yen to force the dollar back below 128. Markets have been significantly long USD through the last few months, and this week’s correction could be the beginning of a broader shift in USD sentiment opening the door for a recovery in other major units. Having witnessed a series of false breaks lower in recent months, a sustained shift in sentiment and an anticipated deterioration in the US economic outlook is needed. When all is said and done, the US economy is still in a position of relative strength when compared with Japan, the UK and Europe, which should afford some cushioning for the USD should a downward correction materialise.

Expected ranges

• AUD/USD: 0.6930 – 0.7090 ▲
• AUD/EUR: 0.6580 – 0.6720 ▲
• GBP/AUD: 1.7580 – 1.7820 ▼
• AUD/NZD: 1.0950 – 1.1080 ▼
• AUD/CAD: 0.8950 – 0.9120 ▲