AUD/USD unable to extend upturn despite surge in risk appetite

Daily currency update

The Australian dollar fell through trade on Thursday, unable to hold onto post FOMC gains despite stronger risk appetite and downturn in global rates. Having touched intraday highs just short of US$0.7160 the AUD appeared poised to extend toward US$0.72 as risk appetite surged following less than hawkish commentary from the European Central Bank and Bank of England. While both central banks opted to lift their underlying cash rates by 50 basis points both pointed to easing inflationary pressures and a balanced inflation outlook, affirming market expectations the global tightening cycle is drawing nearer its end. As global rates fell, equities rallied, yet the AUD was unable to maintain upward momentum. Having marked fresh multi-month highs and extending through the August high of US$0.7137, investors appeared content in giving way to a broader USD recovery, absorbing profits and forcing the AUD back below US$0.71. While we continue to enjoy a series of higher highs and higher lows the speed and pace of the AUD resurgence has slowed. We maintain that resistance on moves approaching and above US$0.7140/0.7150 is intact and will need to see a definitive consolidation and close above this threshold if we are to extend expectations toward US$0.72/0.73. Attentions today turn to US non-farm payroll numbers, key in shaping expectations for the next fed policy meeting.

Key movers

There is plenty to digest this morning after both the Bank of England (BoE) and European Central Bank (ECB) opted to lift their underlying cash rates by 50 basis points overnight. The Great British pound fell in the wake of the BoE policy announcement giving up 1.24 and tumbling below 1.2250 amid a correction in domestic rates and forward guidance. Updated CPI projections point to a significant correction of inflation pressures with estimates anticipating a sharp decline from 10.5% to 4% by year end. As price pressures ease future tightening will likely be conditional as policy makers look to soften any further economic downturn. The euro fell following the ECB policy announcement, sliding back below 1.10 and 1.0950 despite making clear its intention to lift rates by a further 50 basis points next month. A promise to re-evaluate policy in April as the risk to growth and inflation become more balanced was enough to spur markets to pare back future rate expectations cutting 15 basis points off peak funds rate expectations and prompting a correction across key bond markets. Amid a backdrop of lower rates, the Japanese yen outperformed and our attentions turn now to US nonfarm payroll data this evening. We anticipate healthy employment growth but will be keenly attuned to any signal labour market health is waning. Wages data will be of particular importance while service activity will be key in shaping broader consumer sentiment.

Expected ranges

• AUD/USD: 0.6980 – 0.7160 ▼
• AUD/EUR: 0.6420 – 0.6520 ▲
• GBP/AUD: 1.7180 – 1.7420 ▼
• AUD/NZD: 1.0880 – 1.0980 ▼
• AUD/CAD: 0.9380 – 0.9520 ▼