AUD/USD steady as risk sentiment and commodity prices underpin recent gains

AUD - Australian Dollar

The Australian dollar edged higher through trade on Monday, momentarily punching back through 0.75 before maintaining a narrow overnight handle. Having opened at 0.7465 the AUD climbed steadily through the latter hours of the domestic session, buoyed by sustained outperformance across energy led commodities. Both oil and gas carried gains and risk sentiment continued to improve following Friday’s easing stagflation concerns. The AUD appears to have shaken the shackles that saw it drift between 0.7130 and 0.7360 through much of July, August and September entering a new trading range and bouncing between support at 0.7460 and resistance on moves approaching 0.7550. With gains led by improvements in the risk narrative the upturn could falter at any moment but for now we expect commodity led currencies to remain relatively well bid. With little of note on today’s macroeconomic docket our attentions turn to tomorrow’s quarterly CPI print. The RBA has long maintained Australia’s response to supply constraints and rising transitory price pressures is different to the rest of the global economy. A strong print could well undermine that assumption, adding mounting pressure to bring forward a tightening in monetary policy.

Key Movers

Price action across major currencies was largely muted through trade on Monday with most maintaining a narrow +/- 0.3% range against the USD. The Euro was the day’s worst performed and came under pressure early as the Dollar looked set on driving gains and forcing the currency back below 1.16. Having touched lows at 1.1590 the single currency edged higher before maintaining a narrow 10-point range through this morning’s open. Investors appears to be positioning them selves for this weeks ECB policy update. WE expect policy markers will present a consistently dovish tone and are focused on two key talking points. What will happen to the current PEPP program of bond purchases? And Will the ECB push back on market expectations for a rate hike in 2023?Any extension in the current bond buying program will likely weigh on the Euro as the Fed appears poised to announce the tapering of its QE program while rising inflationary pressures and global rates might prompt the ECB to bring forward a rate hike. All in all we don’t expect a great deal from this month’s policy update, instead it is seen as a bridging event ahead of possible policy update in December.

US consumer confidence and Manufacturing Index headline the macroeconomic ticket while the risk narrative continues to drive direction.

Expected Ranges

AUD/USD: 0.7420 - 0.7550 ▲

AUD/EUR: 0.6390 - 0.6480 ▲

GBP/AUD: 1.8220 - 1.8520 ▼

AUD/NZD: 1.0390 - 1.0520 ▲

AUD/CAD: 0.9190 - 0.9320 ▲