AUD/USD falters ahead of key US inflation update

Daily currency update

The Australian dollar retreated through trade on Tuesday unable to sustain a break above US$0.69 as investors square positions leading into Thursday’s all-important US CPI inflation update. Having marked multi-month highs just shy of US$0.6950, the AUD slipped back below US$0.69 through the latter half of the domestic session before marking overnight lows just north of US$0.6860. An absence of headline news left the AUD at the mercy of broader USD flows. Having marked fresh six months lows, the USD found salvage around key technical support lines, driving gains against most majors. Having given up US$0.69 we expect the AUD will track sideways into Thursday’s US inflation update. Easing inflationary pressures remain critical in driving near term monetary policy expectations and as such AUD/USD fortunes. Having enjoyed a relatively positive start to the year, maintaining the momentum enjoyed through December, we expect the AUD will continue to benefit from ongoing dollar weakness and renewed optimism surrounding the global growth outlook, particularly as China re-opening gathers pace. Support for commodities and a weaker USD should afford the AUD some support at and around the current level, with resistance in play on moves approaching US$0.70.

Key movers

The US dollar found support through trade on Tuesday, bouncing off a key technical support line as investors square positions leading into Thursday’s all-important CPI inflation update. With the DXY index breaking supports at 103.45, new support has formed on moves approaching 103, however with broader momentum still favouring risk assets and commodity linked currencies a downside miss against inflation expectations could amplify calls for a correction in the pace of rate hikes and drive further near term USD weakness. The euro marked fresh seven month highs, before meeting resistance on moves above 1.0750. This remains a key psychological barrier for the euro with a break above this handle and toward 1.0790 likely to falter in the absence of a clear catalyst. The GBP has slipped back below 1.22 finding support on moves approaching 1.2110. Any break outside current ranges will be contingent on US inflation data, the key marker driving direction into the weekly close.

Expected ranges

• AUD/USD: 0.6820 – 0.6950 ▼
• AUD/EUR: 0.6350 – 0.6450 ▼
• GBP/AUD: 1.7520 – 1.7720 ▲
• AUD/NZD: 1.0780 – 1.0880 ▼
• AUD/CAD: 0.9180 – 0.9320 ▼