AUD trades higher on improved risk appetite

Daily Currency Update

The Australian dollar is performing stronger this morning when compared to the Greenback trading back above 0.74 US cents.  Overnight the Aussie dollar traded as high as 0.7471, up nearly 1% in the last 24 hours surpassing its previous 2022 high. Yesterday the governor of the Reserve Bank of Australia Philip Lowe warned Australians they are set to take a real pay cut of 1.5% this year because sluggish wages growth won’t meet a surge in inflation. The inflation rate at the moment is 3.5% and could rise up to 4.5% depending on what happens with oil prices. Philip Lowe also said he was hopeful the inflation spike was a one-off caused by supply chain disruption and soaring oil prices due to Russia invading Ukraine, but there were signs that business operators were increasingly willing to jack up prices. On the data front, there are no scheduled releases today. Looking ahead in the week on Thursday we will see the release of the Purchasing Managers’ Index (PMI) a leading indicator of economic health which surveys around 400 purchasing managers and asks respondents to rate the relative level of business conditions including employment, production, new orders, prices, supplier deliveries, and inventories.  From a technical perspective, the AUD/USD pair is currently trading at 0.7467. We continue to expect support to hold on moves approaching 0.7400 while now any upward push will likely meet resistance around 0.7475.

Key Movers

Key movements overnight came after the Federal Open Market Committee (FOMC) Chair Powell’s hawkish speech where he outlined the possibility of raising rates in 50bps clips and said that the Federal Reserve should move expeditiously. The market is now predicting back-to-back 50bps hikes at the Federal Open Market Committee’s next two meetings. The market currently prices in about 42bps of hikes at each of the next two meetings, so there’s a chance of moving to 50bps. US government bond yields soared to multi-month highs after Fed Chair Jerome Powell took a more aggressive stance on monetary policy tightening. Global bond markets continue to struggle as investors take note of the hawkish pivot by central banks. Traders are no longer comparing the current cycle to that of the great bond sell-off of 1994, but are having to go deeper in history back to the 1970s and 1980s. Looking ahead tonight, all eyes will be on the annual UK CPI inflation data which is forecast to lift to fresh highs, with the headline rate at 6% and the core rate at 5%.

Expected Ranges

• AUD/USD: 0.7350 – 0.7550 ▲
• AUD/EUR: 0.6700 – 0.6900 ▲
• GBP/AUD: 1.7700 – 1.7900 ▼
• AUD/NZD: 1.0650 – 1.0850 ▼
• AUD/CAD: 0.9300 – 0.9500 ▲