AUD/USD eyes break below US$0.70 despite improvement in risk sentiment

Daily currency update

The Australian dollar maintained a relatively narrow trading handle when viewed through the lens of recent volatility, bouncing between US$0.6995 and US$0.7040 through trade on Tuesday. Markets largely ignored the RBA meeting minutes and with little else on hand to drive direction through the domestic session the AUD moved toward intraday lows at US$0.6994 before improved US earnings data elevated investors’ appetite for risk and helped the currency climb back above US$0.70. Having marked intraday highs at US$0.7039, the AUD upturn faltered as oil prices led losses across key industrial commodities amid sustained concerns for the global macroeconomic outlook. Global growth headwinds will likely weigh on the AUD through the near term with moves above US$0.71 supported by a softening in the USD. We turn our attention today to key Q2 wage growth data. An uptick in wages, coupled with labour market stability, provides the RBA with a platform to maintain an aggressive program of monetary policy tightening and could signal a 3rd consecutive 50-point rate hike, potentially supporting a push toward US$0.71.

Key movers

The Canadian dollar outperformed all other major currencies through trade on Tuesday, climbing half a percent on the heels of another robust inflation update. Despite a contraction in headline price pressures core measures of inflation continued to rise, extending toward 5.5% year on year. The sustained rise in the cost of living prompted investors to price in a higher chance of more front-loaded Bank of Canada rate hikes, forcing 2-year treasury rates higher and propelling the CAD to intraday highs at CA$0.7791. Improved US earnings data from key major retailers helped advance renewed demand for risk, driving gains across key equity indices and an uptick in global rates. The backdrop of higher rates and improved risk sentiment forced the Japanese yen to give up 0.7% against the USD, allowing the dollar to climb back above Y¥134, while the euro struggled to extend beyond US$1.02 and the pound toyed with a move above US$1.21. We turn our attention now to UK CPI data. Median estimates suggest year-on-year price pressures will print around 9.8%, but a mild upside surprise could see a break above 10%. US retail sales headline the US docket, while Fed minutes for July could provide some insight into the pace of rate hikes moving into September.

Expected ranges

• AUD/USD: 0.6980 – 0.7120 ▼
• AUD/EUR: 0.6850 – 0.6930 ▼
• GBP/AUD: 1.7020 – 1.7380 ▲
• AUD/NZD: 1.1020 – 1.1120 ▲
• AUD/CAD: 0.8980 – 0.9080 ▼