AUD steady despite rise in US and Global rates

AUD - Australian Dollar

The Australian dollar maintained a relatively narrow trading range throughout Monday, tracking between 0.7230 and 0.7270. Having climbed steadily through the domestic and European session the AUD touched highs at 0.7272 ahead of reports president Biden has reappointed Jerome Powell as head of the FOMC and Federal Reserve. The appointment ensures consistency in monetary policy and a sustained dovish outlook. Equities rallied in the wake of the announcement amid a promise of accommodative monetary policy through the months ahead. The AUD however fell back toward 0.7230 as the US dollar found support. Markets continue to ignore the Fed’s dovish interest rate projections pricing in higher interest rates beyond H2 2022. Despite struggling to hold onto gains against the US dollar the AUD outperformed most other major counterparts, seemingly rebuffing last week’s notable underperformance to rally back above 0.54 British Pence, 0.6450 Euro and 1.04 NZD.

With little of note on today’s domestic ticket we continue to watch the performance of global rates and the underlying risk narrative for direction.

Key Movers

The US dollar outperformed Monday buoyed by a rise in rates across the yield curve as investors continue to push expectations for tighter Fed monetary policy through H2 2022. Two year rates rose 7 basis points while 10 year rates jumped 5 as Biden re-appointed Jerome Powell as head of Federal Reserve and FOMC. The higher global rates backdrop forced the Euro toward 1.12 touching new lows at 1.1236. The single currency struggled amid a backdrop of renewed US dollar demand and concern a rise in new Covid infections across the continent will derail the recovery and prompt another round of public health restrictions. This new spike and fourth wave is reportedly worse than those before it with officials warning health systems will soon be overwhelmed unless the spread is broken. With inflation concerns continuing to rise, new lockdowns couldn’t come at a worse time as the already embattled European economy struggles to stave off the threat of stagflation. The promise of accommodative monetary policy and a widening US-EU yield gap will likely place mounting pressure on the Euro through the months ahead. The GBP fell through 1.34 while the Yen also gave up ground down 0.7% as the USD surges toward 115. Our attentions remain with the global rates narrative with the US yield advantage likely to continue to drive USD gains.

Expected Ranges

AUD/USD: 0.7150 - 0.7270 ▼

AUD/EUR: 0.6370 - 0.6450 ▲

GBP/AUD: 1.8380 - 1.8620 ▼

AUD/NZD: 1.0330 - 1.0450 ▲

AUD/CAD: 0.9120 - 0.9220 ▲