AUD/USD slips as inflation pressures ease

Daily currency update

The Australian dollar tracked lower through trade on Wednesday, unable to hold onto gains above US$0.67 despite an improved risk backdrop. There have been no further ructions to elevate fears of a widespread banking collapse as measures employed by key US and European regulators appear to have curtailed contagion concerns. With conditions calmed, risk sentiment improved yet the AUD failed to track higher. Domestic CPI indicators for February showed a sharper than anticipated correction in price pressures. Annual inflation fell below 7%, printing in at 6.8% and down from 7.2% in January. The downturn in inflation pressure, while not a complete quarterly picture, elevates calls for the RBA to pause the current tightening cycle and allow time for past rate hikes to filter into the broader economy.  Market pricing is now consistent with a pause in rate hikes with some analysis beginning to account for a rate cut before year’s end. With domestic bond rates falling the AUD tracked below US$0.67 and currently buys US$0.6680. Our attentions remain on improving risk sentiment ahead of next week’s RBA Policy update.

Key movers

Price action across major currency pairs was relatively muted through trade on Wednesday with little headline news flow and top-tier macroeconomic data on hand to drive direction. As markets work to rebuild confidence, following disruptions caused by recent turmoil within the banking system, the USD dollar found support amid an upswing across domestic equity indices and increased demand for US corporate bonds. While the Euro edged back below 1.0850 and the Sterling slipped toward 1.23, the Japanese yen plunged across the board as the outgoing Bank of Japan Governor, Haruhiko Kuroda, continues to extol the benefits of the current large-scale easing program. Kuroda reiterated his belief the current yield curve control facility and ultra-loose monetary policy framework remained appropriate, casting a shadow over expectations the BoJ will move to adjust its policy in the near term. Amid a backdrop of higher rates, the USD surged through 132 and 132.50 to ark intraday highs at 132.60. Our attentions turn now to incoming Governor Ueda. Ueda is set to take over from Kuroda on April 9 and markets are keenly attuned to any shift in rhetoric and guidance the new Governor may adopt. Our attentions turn now to German CPI inflation data and measures of European commercial confidence while US jobless claims and commentary from Key Fed officials dominate the North American ticket.

Expected ranges

• AUD/USD: 0.6580 – 0.6730 ▼
• AUD/EUR: 0.6120 – 0.6220 ▼
• GBP/AUD: 1.8320 – 1.8520 ▲
• AUD/NZD: 1.0680 – 1.0820 ▼
• AUD/CAD: 0.9020 – 0.9120 ▼