AUD/USD proves resilient in face of USD recovery

Daily currency update

The Australian dollar proved resilient through trade on Wednesday, clawing back early overnight losses despite a robust US dollar rebound. Having tracked sideways through much of the domestic session, the AUD slipped below US$0.6450, marking intraday lows at US$0.6419 following a stronger than anticipated US ISM services print. After Monday’s weak ISM Manufacturing update, last night’s services data took on greater importance. The slowdown in manufacturing activity fostered calls for a Fed Pivot away from its aggressive program of rate hikes in a bid to nurse a soft landing and avoid a deep and prolonged recession. The robust print, however, eased recession fears and suggests the correction in manufacturing activity is a result of consumers pivoting away from manufactured goods and back to services as we re-open after the pandemic. A risk-off mood enveloped equity markets as the good news is bad news theme continued to hold yet failed to permeate currency markets. The AUD climbed off lows tracking back toward US$.65 before maintaining a narrow handle into this morning’s open. Our attentions turn now to more Fed central bank speak and the European Central Bank’s (ECB’s) latest meeting minutes ahead of US non-farm payroll data Friday for direction into the weekly close.

Key movers

The US dollar was the standout performer through trade on Wednesday, recovering much of the week’s early losses following a stronger than anticipated ISM services print. The Bloomberg Dollar Spot Index (BBDXY) index jumped 0.7% as the euro fell short of breaking back above parity and slipped back below €0.99 while the GBP gave up ground falling near 1.5% to £1.1315. The robust services print alleviated fears the US economy may be on the brink of recession. Softer than anticipated, manufacturing data had sparked fears a broader slowdown was underway, elevating calls for the Fed to pivot away from its aggressive program of rate hikes. The uptick in services activity instead suggests consumers are simply transitioning back to the service economy and away from manufactured goods as we re-open after the pandemic. Strength across the service economy helped fuel a resurgence in US rates while Fed officials remain steadfastly committed to the current pace of rate adjustments. San Francisco Fed President Daly commented, “it would be really challenging to slow the pace of rate hikes when core inflation continues to rise”, suggesting another supersized 75-point hike will be delivered next month. As the dollar recoups the week’s early losses, our attentions turn to more Fed commentary and the European Central Bank (ECB) policy meeting minutes ahead of Friday’s all-important non-farm payroll print. With labour market performance critical in shaping Fed and USD direction, we expect markets will sideline major bets until after this data release.

Expected ranges

• AUD/USD: 0.6420 – 0.6530 ▼
• AUD/EUR: 0.6480 – 0.6620 ▲
• GBP/AUD: 1.7280 – 1.7680 ▼
• AUD/NZD: 1.1250 – 1.1380 ▼
• AUD/CAD: 0.8750 – 0.8880 ▲