Basket Village USA
Daily Currency Update
The Australian dollar fell back below US$0.63 overnight as markets continue to readjust expectations following the Fed’s latest policy offer. While the FOMC is expected to slow the pace of rate hikes next month, Fed Chairman Jerome Powell’s message was openly hawkish, suggesting the interest rate outlook will be higher for longer. U.S. rates jumped in the wake, extending gains from Thursday’s trade and dragging the U.S. dollar higher. The AUD is down about 1% since this time yesterday after hitting intraday lows at US$0.6270. While the AUD enjoyed a brief respite, marking highs north of US$0.65 through the end of October, momentum is once again firmly behind the US dollar. Ongoing uncertainty surrounding the global growth outlook, weak Chinese economy and a divergence in the short-term outlook for the Fed and RBA will continue to weigh on the AUD and will likely limit any meaningful recovery. Our attention now turns to the RBA’s Monetary Policy Statement and the US non-farm payroll. While Tuesday’s RBA policy update provided insight into the forecast changes, indications of inflation and GDP expectations remain key in determining the RBA’s policy expectations in the near future. term. We expect job growth to have slowed in the US, but the US labor market remains remarkably resilient. That said, comments from a number of key business analysts suggest the landscape could be changing. With Morgan Stanley and Amazon reportedly set to announce hiring freezes and staff cuts, a slowdown in non-farm payrolls performance could help push the AUD higher at the weekly close.
Key Movers
Momentum remains firmly behind the USD as the fallout from the Federal Reserve’s latest hawkish policy bid fuels demand for the global base currency. The promise of higher rates and elevated risk aversion helped propel the USD higher against a basket of major counterparties. The BB DXY index rose three-quarters of a percent in trade on Thursday and is now just 1.5% off its recent 18-year high. The sustained hawkish outlook from the Fed contrasts sharply with the latest offers from other major central banks. The Bank of England, while raising rates by 75 basis points, forecasts a significant contraction in GDP and a sharp decline in inflation over the next three years. Bank of England Governor Bailey doubled down on the dovish tone, suggesting rates will rise less than what is currently priced in financial markets. The pound plunged on the wake of the BoE’s dovish statement, down almost 2% and is the worst performing currency over the past 12 hours. Elsewhere, the Euro is down around 0.7% under the weight of USD strength, while the Yen is trading above 148 as the rising rate backdrop strengthens again. pressure on the Ministry of Finance to intervene. Today, our attentions turn to the US Nonfarm Payrolls as a key marker guiding direction towards the weekly close.
Expected ranges
- AUD/USD: 0.6230 – 0.6420 ▼
- AUD/EUR: 0.6380 – 0.6520 ▼
- GBP/AUD: 1.7680 – 1.8020 ▼
- AUD/NZD: 1.0870 – 1.0930 ▼
- AUD/CAD: 0.8580 – 0.8720 ▼
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