OzForex Research
OzForex Foreign Exchange
Daily Currency Update
The Australian dollar maintained a relatively narrow trading handle through Tuesday, as markets seem content in ignoring recent RBA rhetoric and watching global rates rise. The sell off across global bonds continued as markets scramble to adjust central bank policy expectations. US treasury yields rose with 10-year notes nearing 2% while European bonds advanced 6 basis points and UK bonds rose 8 points, even Japanese bonds rallied. Against this backdrop, the AUD edged toward intraday highs at 0.7145. The market remains hawkish in its expectations for RBA policy, ignoring recent commentary from policymakers and pricing in a rate hike as early as June. Many expect the Bank will eventually align itself with broader market estimates, following its counterparts in adopting a more hawkish approach to monetary policy tightening. With little of note on today’s domestic macroeconomic calendar, our attentions remain affixed to Thursday’s US CPI print. We expect some easing in price pressures through January, yet annualised rates will likely remain elevated. Should the core inflation rate extend above 6% the AUD may come under pressure as markets again price a sharp increase in US rates.
Key Movers
Price action across major currencies was modest through trade on Tuesday, as the market’s attentions were instead drawn to the ongoing volatility and rapid appreciation across global bond rates. Bond markets rallied again with US, UK, European and even Japanese bonds rising across both 2- and 10-year notes as analyst rush to adjust to the central bank’s hawkish pivot. In this environment, low yielding units underperformed, with the yen giving up 115.50 while the NZD and AUD were up on the day. The DXY dollar index extended back above 95.50 as the euro tested a break back below 1.14 and sterling offered little to excite investors. With little of note on today’s ticket, we look to US CPI data Thursday for macroeconomic stimulus.
Expected Ranges
- AUD/USD: 0.7030 – 0.7230 ▲
- AUD/EUR: 0.6220 – 0.6320 ▲
- GBP/AUD: 1.8880 – 1.9050 ▼
- AUD/NZD: 1.0720 – 1.0780 ▲
- AUD/CAD: 0.8980 – 0.9120 ▲
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EUR/USD treads water just above 1.0400 post-US data
Another sign of the good health of the US economy came in response to firm flash US Manufacturing and Services PMIs, which in turn reinforced further the already strong performance of the US Dollar, relegating EUR/USD to the 1.0400 neighbourhood on Friday.
GBP/USD remains depressed near 1.2520 on stronger Dollar
Poor results from the UK docket kept the British pound on the back foot on Thursday, hovering around the low-1.2500s in a context of generalized weakness in the risk-linked galaxy vs. another outstanding day in the Greenback.
Gold keeps the bid bias unchanged near $2,700
Persistent safe haven demand continues to prop up the march north in Gold prices so far on Friday, hitting new two-week tops past the key $2,700 mark per troy ounce despite extra strength in the Greenback and mixed US yields.
Geopolitics back on the radar
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Eurozone PMI sounds the alarm about growth once more
The composite PMI dropped from 50 to 48.1, once more stressing growth concerns for the eurozone. Hard data has actually come in better than expected recently – so ahead of the December meeting, the ECB has to figure out whether this is the PMI crying wolf or whether it should take this signal seriously. We think it’s the latter.
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