AUD/USD struggles to mount recovery as investors digest inflation expectations

AUD - Australian Dollar

The Australian dollar tracked sideways through much of the day Thursday, unable to recover the losses suffered in the aftermath of Wednesday’s US CPI print. Investors continue to digest changing inflation expectations, while cooling commodity prices did little to drive gains. A correction in iron ore, down 9% on reports China will adopt measures to dampen further appreciation, coupled with a decline in copper, forced the AUD toward intraday lows below 0.77, touching 0.7689. Building near term headwinds looked set to force the AUD to close below 0.77, before a relief rally across equity and bond markets, and dip in 10-year treasury yields and the break-even inflation rate, helped the AUD climb back toward the days high at 0.7740. The AUD currently buys 0.7726 at the time of writing. Our attentions turn tonight towards US retail sales print, a marker of ongoing economic recovery, ahead of next weeks domestic labour market data report. With inflation fears still driving market direction, we anticipate the AUD will struggle to extend upside significantly beyond 0.7790/0.78, with remaining supported on moves approaching 0.7680/0.7630.

Key Movers

Price action across currency markets was modest Thursday as investors continued to digest Wednesday’s response to the sharp rise in US inflation. The dollar index tracked sideways consolidating Wednesday appreciation, while the euro and GBP remain largely unchanged trading at 1.2080 and 1.4050 respectively. The Canadian dollar was the days big mover, driven lower by a falling oil price and dovish commentary from the Bank of Canada. BoC governor Macklem sighted concerns around the appreciation of the currency, while affirming the bank's commitment to accommodative monetary policy, announcing “the BoC will keep its accommodative platform in place until there is a complete recovery in the economy”. The comments seemingly contrast with those proffered in the wake of their last meeting, wherein policy makers appeared hawkish in their assessment of the recovery, suggesting conditions for a rate hike would likely be met in the second half of next year. The walk back saw the CAD fall below 0.8250, testing a break below 0.82, before creeping higher into this morning’s open.

Expected Ranges

AUD/USD: 0.7680 - 0.7790 ▼

AUD/EUR: 0.6370 - 0.6420 ▼

GBP/AUD: 1.8020 - 1.8250 ▼

AUD/NZD: 1.0710 - 1.0790 ▼

AUD/CAD: 0.9330 - 0.9450 ▲