AUD/USD claws back losses as RBA adopts a hawkish tone

Daily currency update

The AUD found support through trade on Monday, bouncing off US$0.6880 following the RBA’s rate update and a broader US dollar correction. The RBA opted to lift the cash rate by 25 basis points Tuesday, taking the headline policy rate to 3.35%. The decision was largely anticipated however policy makers penchant for a more hawkish bias moving forward took some investors by surprise. In its post-rate statement, the RBA indicated that “further increase in interest rates will be needed over the months ahead”. Price action across rates lifted in the wake of the policy announcement as markets looked to adjust expectations and account for at least two more rate hikes before June. The AUD consolidated a break above US$0.69 in the wake of the announcement and extended gains overnight. Broader USD weakness helped lift the AUD toward session highs just shy of US$0.70. Fears the Fed would double down on its hawkish rhetoric following Friday’s shock payroll and services prints abated as Fed Chair Jerome Powell spoke for the first time this week. Powell simply re-iterated the Fed’s positions and offered little indication policy makers planned to stray from their current path and plan. Having edged back toward US$0.6950 we anticipate ongoing volatility as investors look to find their footing and reposition rate expectations.

Key movers

The Japanese yen was the best-performing major unit overnight, following stronger-than-anticipated wage growth. Data showed wages have advanced near 5% year on year, bolstered by winter bonuses and a broader response to inflationary pressures. With markets looking to the Bank of Japan’s expectations policy makers will be forced to amend the current policy framework lifted helping the JPY push back against recent US dollar gains. Having advanced 1.5% the yen touched intraday highs at ¥130.50 before correcting lower into this morning’s open. In other news, the US dollar tracked lower on the day following commentary from Fed Chair Jerome Powell. Markets were keenly attuned to Powell’s address, the first since Friday’s payroll and service data shock. Fears the Fed may again adopt an aggressive tone in tackling inflationary pressures eased as Powell simply reiterated his post-Federal Open Market Committee meeting message. While there is still a long way to go the inflation, pressures are easing with future interest rate adjustments dependent on incoming data. With the US dollar tracking lower the euro clawed its way back above US$1.07 while the GBP pushed off intraday lows south of US$1.1975 to trade back above US$1.20. With little of note on today’s macroeconomic ticket, we anticipate markets will continue to re-adjust policy expectations and positions in the wake of last week’s blockbuster data dump.

Expected ranges

• AUD/USD: 0.6880 – 0.7020 ▲
• AUD/EUR: 0.6380 – 0.6520 ▲
• GBP/AUD: 1.7250 – 1.7520 ▼
• AUD/NZD: 1.0920 – 1.1020 ▲
• AUD/CAD: 0.9220 – 0.9380 ▲