AUD/USD surges toward US$0.68 as Fed President suggest pace of hikes will slow

Daily Currency Update

The Australian dollar opens just shy of US$.68 this morning having surged higher leading into this morning’s open. With little of note on the domestic docket the AUD drifted sideways through much of the local session bouncing between US$0.6675 and US$0.6725. Optimism surrounding the eventual move away from Covid-zero in China continues to gather momentum as officials consider authorising a fourth Covid booster, while messaging emanating from Chinese State media is beginning to pivot away from fear of the virus and toward personal responsibility. The CNY and CNH continued their recent run of strength dragging the AUD higher and allowing analyst to bypass a softer than anticipated inflation print. Having marked session highs just short of US$0.6750 the AUD leap toward US$0.68 as markets scramble to respond to commentary from Fed Chair Jerome Powell. Where Fed officials have been at pains to suggest the pace of rate hikes won’t change Powell’s comments sparked a sharp correction across US rates and sent the USD tumbling. Powell suggested “we don’t want to overtighten” and that “slowing rate hikes at this point makes sense”. Markets rushed to adjust expectations for the December 15 policy update with near 90% pricing in a smaller pace of rate adjustment and a 50-point hike. Having touched intraday highs at US$0.6802 the AUD opens this morning at US$0.6795.

Key Movers

Price action across major currencies was relatively modest through much of Wednesday until Fed Chair Jerome Powell served up a less than hawkish statement ahead of key non-farm payroll data. Having tracked sideways the dollar index plunged after Powell suggested “We don’t want to overtighten” and that “slowing rate hikes makes sense”. Powell’s comments forced markets to rapidly re-adjust US rate expectations with near 90% of analyst now pricing a tempering in the pace of rate adjustment and a 50-point hike later this month. The less than hawkish statement sits in contrast to recent commentary from key FOMC policy makers where the importance of quashing in inflation and maintaining tighter monetary policy programs has been imbued. With the USD on the back foot the Euro surged back through €1.04 despite a significant downside miss on inflation, while the pound lurched back above £1.20 and the Yen gathered more momentum sending the USD below ¥138.50 and new intraday lows at ¥137.75. Our attentions turn now to US non-farm payroll data Friday. A miss against expectations will likely heap more pressure on the USD.

Expected Ranges

• AUD/USD: 0.6650 – 0.6830 ▲
• AUD/EUR: 0.6420 – 0.6550 ▲
• GBP/AUD: 1.7620 – 1.8020 ▼
• AUD/NZD: 1.0720 – 1.0820 ▼
• AUD/CAD: 0.9020 – 0.9150 ▲