Risk appetite renewed; AUD pushing toward 0.75 US cents

AUD - Australian Dollar

The Australian dollar extended its upward tryst through trade on Tuesday, marking a new 8-week-high and pushing toward 0.75 US cents. Despite an absence of headline macroeconomic datasets and news flow, risk appetite shifted higher, driving global equities, rates and commodity currencies upward. Our attentions yesterday were firmly affixed to the RBA as it released its policy meeting minutes and an update on 2024 bond rates. Policy makers chose to pass on buying activity during the day, instead choosing to adjust the repo rate after hours while standing by its 2024 commitment to interest rates. Minutes from the October meeting affirmed the RBA’s assessment of inflation and wage pressures. It remains the banks' policy that the Australian wage and inflation experience differs to that of other major counterparts, and as such they see little need to raise rates before 2024. The market is now pricing a different outcome, consistent with rates hikes being introduced in mid to late 2022. There is a clear disconnect between market and RBA now and an expectation domestic CPI and wage pressures will follow global patterns and force the RBA to backflip its current stance. Having broken the September high at 0.7460 the AUD appears poised to test a break back above 0.75 US cents.

Key Movers

Safe haven currencies were the day's big losers on Tuesday as a risk rally drove the USD, JPY and CHF all lower. The dollar index fell 0.4%, allowing the euro to extend gains beyond 1.16 to touch 1.1640 and the pound to push back above 1.38. A continued correction in US treasuries have dampened demand for the USD through the last 5 days as markets re-adjust expectations for Fed policy in 2022. A string of softer than anticipated domestic macroeconomic indicators through Q3 and persistent shortages in workers and raw materials as supply bottlenecks narrow are prompting traders to downgrade monetary policy tightening forecasts. Despite a relatively hawkish Fed outlook, there is an expectation the impacts of the delta outbreak will linger through H2 2022. Our attentions remain affixed on the November policy update from the Fed as a critical marker for near term direction.

Our focus today however turns to UK CPI data. With markets firming bets on a BoE rate hike, today's print will go a long way in defining near term direction. There is a concern that an interest rate hike will do little in correcting the current stagflation crisis and will only dampen the UK economic recovery, perhaps adding downward pressure on the GBP.

Expected Ranges

AUD/USD: 0.7390 - 0.7520 ▲

AUD/EUR: 0.6350 - 0.6450 ▲

GBP/AUD: 1.8320 - 1.8530 ▼

AUD/NZD: 1.0390 - 1.0520 ▼

AUD/CAD: 0.9150 - 0.9290 ▲