AUD/USD recovery stalls on approach to 0.76

AUD - Australian Dollar

The Australian dollar crept toward 0.76 US cents on Thursday, continuing to recover last weeks dramatic sell off. With little of note on the domestic macroeconomic ticket, the direction was again driven by the shifting reflation narrative. A sense of calm has permeated markets in the last few days, as analysts adjust positions and last weeks FOMC policy update fades into the background. Markets largely ignored commentary from Fed officials overnight, instead, content in the expectation that monetary policy will remain accommodative for an extended period. The reflation narrative continues its rejuvenation, prompting upside across equities and commodity currencies. Having touched intraday lows at 0.7569, the AUD opens this morning just short of 0.7590, buying 0.7584 US cents. While we anticipate the recovery will continue toward pre-FOMC levels there are headwinds. Markets remain on edge following last weeks price action, so any recovery will likely be steady and measured, while tensions with China continue to undermine commodity driven demand. China has filled a lawsuit with the WTO over Australia’s anti-dumping and anti-subsidy measures on Chinese exports of railway wheels, wind towers and stainless-steel sinks. While not exactly the biggest commodities exchanged between the two countries, it is further evidence of growing tensions and Beijing’s intent of making an example of Australia. With little of note on today’s docket we look to the US PCE index as an updated measure of inflation, while the risk recovery will likely dominate direction into the weekend.

Key Movers

The US dollar tracked sideways through much of Thursday as losses against key commodity-led counterparts were offset by a downturn in the GBP. The Great British pound was the days biggest loser among majors, underperforming following a surprisingly dovish statement from the Bank of England. Sterling fell through 1.39 overnight, touching intraday lows at 1.3891, after the Bank of England opted to keep its policy setting unchanged, suggesting any adjustment in interest rates will only happen when there is significant evidence the 2% inflation target can be sustainably achieved. The BoE was clear to indicate it sees the current inflation forecast as transitory and while it is likely prices will rise in excess of 3%, there is an expectation they will moderate once supply constraints and pandemic pressures ease. Policy makers were careful to note they preferred to lean toward downside risks and keep policy accommodative when in doubt, for fear of undermining the recovery. Markets had expected the Bank of England would indicate a possible tightening of interest rates in Q2 2022 and the lack of nod to a shift in policy hurt the GBP.

The euro maintained a narrow range, bouncing between 1.1920 and 1.1950, while the yen regained some ground against the USD, forcing it back below 111 toward intraday lows at 110.725.

Expected Ranges

AUD/USD: 0.7510 - 0.7630 ▲

AUD/EUR: 0.6320 - 0.6370 ▲

GBP/AUD: 1.8170 - 1.8520 ▼

AUD/NZD: 1.0720 - 1.0780 ▼

AUD/CAD: 0.9280 - 0.9390 ▲