AUDUSD gives up gains as midterm election uncertainty and cryptocurrency meltdown dampen risk demand

Daily currency update

Having tested a break above US$0.65, the AUD tracked downward through trade on Wednesday amid a correction in risk appetite. Uncertainty surrounding US midterm election results and a meltdown in cryptocurrencies prompted a move toward haven assets overnight, as investors look to square positions ahead of tonight’s all-important US CPI inflation update. Midterm election results have begun filtering through, and it appears to be a much tighter race than polls predicted. Republicans have not performed as well as anticipated, opening the door to a government in gridlock with neither side forming a majority in the House or Senate. While political uncertainty may amplify near term risk aversion the longer run impacts should be market positive and could help drive AUD upside in the new year. The AUD failed to consolidate a break above US$0.65 edging lower toward the end of the domestic session, before extending the downturn overnight. Fears a meltdown in cryptocurrencies could spill over into equities and other financial instruments further dampened risk demand and forced the AUD toward intraday lows below US$0.6450. With little of note on today’s domestic ticket our attentions turn to US CPI inflation data. With Fed and FOMC forward guidance in the spotlight a notable deviation from market consensus will likely trigger a significant market reaction. Anther upside surprise will support calls for a higher and longer period of monetary policy tightening, while an easing in price pressures could prompt another AUD surge as calls to temper the pace of future Fed rate hikes intensify.

Key movers

The US dollar advanced through trade on Wednesday, snapping a three-day losing streak amid midterm election uncertainty and a meltdown in cryptocurrencies. The dollar index advanced as the Great British pound, euro and key commodity currencies all turned lower. The AUD and NZD gave up near 1% overnight, while the euro and yen suffered modest losses and the GBP underperformed all other counterparts. The GBP has enjoyed elevated volatility through the last four weeks, a trend that looks unlikely to change in the near term. Sterling gave up near 1.5% overnight, crashing back below 1.14. There appears no obvious catalyst for the correction outside general uncertainty surrounding the domestic economic outlook. Our attentions today turn to US CPI inflation data. With Fed and FOMC forward guidance in the spotlight, a notable deviation from market consensus will likely trigger a significant market reaction. Another upside surprise in core inflation will support calls for a higher and longer period of monetary policy tightening, while an easing in price pressures could prompt another surge in dollar selling as calls to temper the pace of future Fed rate hikes intensify.

Expected ranges

• AUD/USD: 0.6320 – 0.6550 ▼
• AUD/EUR: 0.6380 – 0.6520 ▼
• GBP/AUD: 1.7520 – 1.7880 ▼
• AUD/NZD: 1.0880 – 1.1020 ▲
• AUD/CAD: 0.8650 – 0.8750 ▲