AUD recovery continues as sentiment improves

Daily Currency Update

The Australian dollar recovery continued through trade on Wednesday, stretching comfortably through 0.7150 to mark intraday highs at 0.7180. Market sentiment continues to improve as investors adopt a more optimistic outlook on China, while the threat posed by the omicron variant appears to be fading. Having tracked sideways for much of the domestic session, the AUD was well-supported overnight, bolstered by Chinese yuan surge. The CNY forced the USD down toward 6.34, marking a 3-year high amid hopes accommodative monetary policy conditions and a reduction in controls on the property market will promote a strong post- Delta rebound throughout 2022. The elevated yuan coupled with another surge in key commodity prices, namely Iron Ore, helped drag the AUD higher, extending the week’s upturn and consolidating the break away from supports at 0.70 US cents. Our attentions today turn to RBA Governor Lowe as he addresses a virtual summit on Australian Payment Networks. We expect very little update on the commentary afforded in the wake of RBA policy update. Chinese CPI and PPI data and US jobless claims dominate the international macroeconomic ticket while market sentiment continues to steer the broader narrative.

Key Movers

Price action across major currencies was mixed through Wednesday as the CAD, GBP and JPY all fell, while the euro found support. The CAD came under pressure following the Bank of Canada Monetary Policy update, a statement that afforded little change from last month and failed to meet the market’s hawkish expectations. The incremental shift in narrative fell short of investors’ aggressive rate hike expectations and prompted a correction in bond prices at the short end of the yield curve, forcing the CAD lower. Downward pressure on the CAD was compounded by an uptick in global bond rates. US and European treasuries both advanced, leaving the UK and Japanese bond rates behind. The yen and GBP have come under increasing pressure amid the backdrop of higher global rates and the USD pushed back toward 114 while the GBP temporarily broke below 1.32, touching 1.3170. Attentions today turn to US jobs data while Global bond prices and the broader risk narrative continue to drive direction.

Expected Ranges

• AUD/USD: 0.7000 – 0.7230 ▲
• AUD/EUR: 0.6250 – 0.6350 ▲
• GBP/AUD: 1.8290 – 1.8620 ▼
• AUD/NZD: 1.0470 – 1.0550 ▲
• AUD/CAD: 0.8990 – 0.9130 ▲