Daily currency update

The Australian dollar finished the week weaker trading below 66 US cents on modest USD strength. On Friday the AUD/USD dropped further during the American session amid risk aversion and a stronger greenback. The pair is trading at US$0.6540, the lowest level in more than two years (May 2020). Fears about a global recession and higher interest rates continue to weigh on market sentiment that affects emerging and commodity currencies like the Australian dollar. Australia’s biggest raw material export, iron ore, currently sells at $98.65 a ton, less than half the value it was in July last year. China’s property market convulsions are well known. The AUD/USD pair is currently trading at US$0.6511. A very quiet week ahead in Australia on the data front. On Wednesday the Australian Bureau of Statistics will release the monthly Retail Sales figures. It’s the primary gauge of consumer spending, which accounts for the majority of overall economic activity. On Friday the Reserve Bank of Australia will release the monthly Private Sector Credit figures as consumers and businesses tend to seek credit when they are confident in their future financial position and feel comfortable spending money. Looking overseas this week and on Thursday in the United States Federal Reserve Chair Jerome Powell is due to deliver opening remarks in a pre-recorded video at the Community Banking Research Conference, in St. Louis. Volatility is often experienced during his speeches as traders attempt to decipher interest rate clues. On Thursday we will also see the release of the US Gross Domestic Product (GDP) which is forecast to come in -0.6%.

Key movers

On Friday in the United States, the data published by S&P Global showed that the business activity in the US manufacturing sector expanded at a stronger pace in early September than in August with the Manufacturing PMI rising to 51.8 from 51.5. This reading came in better than the market expectation of 51.5. Further details of the monthly publication revealed that the Services PMI rose sharply to 49.2 from 43.7 and the Composite PMI improved to 49.3 from 44.6. Last Wednesday the Federal Reserve raised its benchmark interest rate by three quarters as expected. Federal Reserve chairman Jerome Powell vowed to bring inflation down and restore price stability. The Federal Reserve’s rate hikes and tough talk on inflation are supporting the U.S. Dollar Index for now. But rising joblessness, falling manufacturing activity, slumping home sales, and disappointing GDP numbers in coming reports could signal a hard landing for the economy. That would effectively force central bankers to back down. The Bank of England announced on Thursday a 50 bps rate hike. Five members of the Monetary Policy Committee voted for that decision, three members wanted a 75 bps hike, and one member a 25 bps hike. The decision reflects a very uncertain economic outlook. On Friday the pound suffered the worst decline since at least March 2020, with GBP/USD losing more than 300 pips. Having recovered toward 1.1100 earlier in the session, GBP/USD turned south in the American session and touched its lowest level since 1985 below US$1.0900. The GBP/USD pair is currently trading at US$1.0816 (0.9246).

Expected ranges

  • AUD/USD: 0.6450 – 0.6650 ▼
  • AUD/EUR: 0.6650 – 0.6850 ▲
  • GBP/AUD: 1.6450 – 1.6650 ▼
  • AUD/NZD: 1.1250 – 1.1450 ▲
  • AUD/CAD: 0.8750 – 0.8850 ▲

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