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AUD - Australian Dollar

The Australian dollar was in freefall on Friday, closing below 75 US cents and key support lines for the first time in 2021. Investors continued to readjust currency positions following the Federal Reserve’s hawkish update on Thursday, with members pushing the dot plot average of interest hikes forward to 2023. A stronger than expected domestic unemployment print during the week did little to support the Australian dollar as money poured into the greenback to close the week.

Opening at 0.7550 on Friday, it was a steady day on the local front with the majority of price action occurring during the North American session. The AUD/USD cross hit an intraday low of 0.7477 and collapsed in line with equity markets.

The AUD/USD cross will take its cues this week from the latest Retail Sales print due for release this morning. The Australian dollar opens lower this morning at 0.7481. We expect support levels to hold onto moves approaching 0.7440, while any upward push will likely meet resistance at 0.7520.

Key Movers

The US dollar Index saw its biggest shift higher this year, gaining 2% for the week as investors continued to pour into the greenback post FOMC updates on Thursday. Opening at 91.88, the DXY gained 0.46% on Friday. The Federal Reserve dot plot shifted towards two rate hikes in 2023, fuelling a sell off on Equity markets and commodity-based currencies.

Furthermore, Federal Reserve member James Bullard put further fuel to the declining equity markets stating he would not be surprised to see the first hike in late 2022. The Dow Jones Industrial Average finished 1.58% lower and S&P 500 down 1.33%.

Elsewhere the Bank of Japan made no surprises on Friday, retaining its ultra-loose monetary policy intact and maintained its short-term interest rates at -0.1%. The Pandemic-relief programme was extended a further six months past September to March 2022 as the USD/JPY finished flat for that day at 110.21.

EUR/USD finished 0.36% lower (1.1862) and the GBP/USD also declined 0.90% to 1.3798 due to greenback strength and a poor United Kingdom retail sales print. The Bank of England latest interest rate decision is the main headline this week, with little expectation of a shift similar by the BOE to the Fed changes seen last week.

Expected Ranges

AUD/USD: 0.7440 - 0.7520 ▼

GBP/AUD: 1.8200 - 1.8550 ▲

AUD/NZD: 1.0740 - 1.0810 ▲

AUD/EUR: 0.6280 - 0.6330 ▼

AUD/CAD: 0.9290 - 0.9350 ▼

AUD - Australian Dollar

The rout on commodity currencies and risk assets continued through trade on Thursday. The fallout from the Fed’s hawkish update spilled into a second day, with markets scrambling to amend positions and expectations we’ve seen a sizeable shift across all financial markets with currencies, commodities and treasuries bearing the brunt of the correction. Commodity prices have slumped nearly 4% in the aftermath, led by steep depreciations in copper, silver and gold. The definitive risk-off move has seen the AUD move through key supports and shift below the 200-day moving average, breaking below 0.76 to touch intraday lows at 0.7540. The question now; is this a short-term reactionary response or a larger shift in the market narrative? The Fed has done little more than change the tone of its commentary. It remains committed to its accommodative monetary policy program through the short-term and appears unlikely to make any real policy changes in the near term, instead keeping their foot down in a push to drive further economic recovery. Yes, policy normalisation has been brought forward, but we can argue the RBA will be forced to bring forward its own guidance. Yesterday’s labour market print showed the domestic economy has rebounded swiftly from the worst of the pandemic. The unemployment rate fell to 5.1%, driven by an improvement in full time employment, a reduction in underemployment and uptick in the participation rate. The RBA has signaled conditions will unlikely support a rate hike before 2024, but on the current trajectory we can’t see them maintaining this path, perhaps adding some support to the AUD through the long term as any divergence in monetary policy expectations shrinks. The AUD remains firmly entrenched in a downtrend and having broken key supports already, further losses are not out of the question. That said, underlying fundamentals remain AUD positive and should help underpin the currency on moves approaching 0.75.

Key Movers

The US dollar remains firmly in the box seat enjoying the fallout from the Fed’s shift in tone and the current risk off backdrop. The Dollar index closed higher for a fifth consecutive day and has recovered half the depreciation suffered in the three months since March. Advancing against all majors outside the Japanese yen, the dollar has forced the euro below 1.20 and 1.19, breaking its 200-day moving average, while sterling has been driven out of its 1.41-1.42 range, breaking below 1.40 and 1.39 to touch lows at 1.3897. Our attentions remain with the current shift in narrative as we seek signals to determine if this shift is part of a larger change in narrative or a knee jerk response to headline market event.

Expected Ranges

AUD/USD: 0.7480 - 0.7680 ▼

AUD/EUR: 0.6290 - 0.6360 ▼

GBP/AUD: 1.8190 - 1.8580 ▲

AUD/NZD: 1.0720 - 1.0820 ▲

AUD/CAD: 0.9290 - 0.9380 ▼

AUD - Australian Dollar

The Australian dollar fell sharply through the overnight session, breaking key supports at 0.7680 to touch a two-and-a-half-month low at 0.7608. The AUD tracked sideways in the lead up to the Federal Reserve’s quarterly forecast and rate statement before a swift shift toward haven assets prompted a sell-off across commodity and emerging market currencies. The FOMC dot plot suggested policymakers now believe at least two rate hikes will be appropriate in 2023, bringing forward estimates having signalled there would be no rate adjustment until 2024 in March. The market had priced in a single rate hike in Q2 of 2023, so the projection of 2 hikes surprised investors and prompted a rapid correction of bond yields and asset expectations. Having broken supports, the AUD has shifted out of the narrow handle between 0.7680 and 0.7820 it has held since April and is now firmly entrenched within a near term bear trend. Our attentions remain with the risk narrative and implications of a shift in Fed expectations on market prices, while domestic labour market and unemployment data could provide a catalyst for a deeper correction should they miss the mark. A break below 0.7580/0.76 may prompt a deeper push toward 0.75.

Key Movers

The US dollar index enjoyed its biggest single-day rally in 9 months following the sharp increase in US 10-year treasury yields and market reaction to the FOMC policy announcement. While the Fed opted to maintain its current policy settings, its quarterly forecast showed Fed officials brought forward their expectations for a rate adjustment, surprising markets and prompting a risk-off move. Bond yields spikes with the 10-year treasury rate climbing off 1.5% to 1.57% while break-even inflation rates climbed 5 basis points and over 2.3%.

Both the euro and pound gave up ground with the euro slipping toward a six-week low and the pound falling below 1.40. The Japanese yen out-performed in the risk-off environment as did the Swiss franc, but neither currency was able to keep pace with the USD as the world’s base currency pushed its haven counterparts to lows not seen since April.

Our attentions remain with the current narrative and ongoing correction in market pricing and monetary policy expectations.

Expected Ranges

AUD/USD: 0.7580 - 0.7730 ▼

AUD/EUR: 0.6290 - 0.6360 ▲

GBP/AUD: 1.8290 - 1.8520 ▲

AUD/NZD: 1.0760 - 1.0820 ▲

AUD/CAD: 0.9310 - 0.9420 ▼

AUD - Australian Dollar

The Australian dollar slipped below 0.77 US cents on Tuesday, hampered by a sustained risk-off move and a downturn in key commodity prices. Markets largely ignored the RBA’s June meeting minutes, with little additional guidance contained within the meeting notes. Investors have flagged next month's meeting as a pivot point in forward guidance, anticipating policymakers will announce an amendment in the size of monthly bond purchases while maintaining the current yield curve target. Instead, the AUD came under pressure as copper prices fell 4% on reports that China will release some of its stockpile in a bid to control commodity prices. Copper prices have fallen 11% since the mid-May high and while still historically elevated may struggle to hold onto current levels through the weeks ahead. Having slipped below 0.77 US cents, the AUD touched intraday lows at 0.7674 before creeping higher into this morning’s open.

The AUD continues to face near term headwinds and while supported on moves approaching 0.7670/80 there is scope to suggest a sustained risk-off run could force the currency toward 0.7630/0.7580. Attentions today turn to the FOMC meeting and press conference. We anticipate direction will remain muted in the lead up as investors keenly await any suggestion the Fed has begun discussing the tapering of bond purchases while updating their interest rate projections.

Key Movers

The US dollar crept higher through trade on Tuesday amid a more cautious backdrop and increase demand for haven assets. Risk aversion has allowed the CHF and JPY to outperform this week, while the euro also found support creeping higher. Commodity currencies are the days big losers, with the CAD following the AUD and NZD lower despite an uptick in oil prices. Brent Crude Oil prices rose 1% on the day, touching their highest level in two years at 73.60 a barrel. With supply constrained and demand increasing, there is scope to suggest oil prices will continue to rise, with some analysts suggesting $100 a barrel is not out of the realm of possibility.

Our attentions turn now to the FOMC meeting. While we expect the Fed will maintain the current policy platform, there is a growing expectation policymakers will at least begin the discussion of tapering bond purchases while bringing forward interest rate expectations. We are keenly attuned to the Fed’s dot plot as a key market of possible interest change. Despite the optimism in some circles, we anticipate the Fed will maintain its current rhetoric and at best offer flimsy guidance on the conditions required to prompt a change in policy.

Expected Ranges

AUD/USD: 0.7630 - 0.7780 ▼

AUD/EUR: 0.6290 - 0.6360 ▼

GBP/AUD: 1.8180 - 1.8440 ▲

AUD/NZD: 1.0750 - 1.0820 ▲

AUD/CAD: 0.9340 - 0.9390 ▲

AUD - Australian Dollar

Currencies were little changed on Monday as US equities challenged record highs ahead of Wednesday’s monetary policy decision from the Federal Reserve. Although the US Dollar index was flat on the day, the AUD was able to consolidate above 0.7700 and the NZD traded in a tight band between 0.7125 and 0.7153. Trading in the AUD/NZD cross was also tight, ranging between 1.0790 and 1.0810.

We’re set for a busy day today on the data front with a number of potentially market moving releases due. We can expect the RBA to publish the minutes from its board meeting in June with markets hoping for hints regarding the direction of policy settings to be decided at next month’s meeting. Across the pond we have some housing data due which will be watched closely given the governments recent intervention in this sector. We will also get May’s food price index and GDT dairy auction. Finally, we will get UK unemployment data and a raft of other releases out of the USA, most notably retail sales data for May.

Key Movers

As we touched on above, currencies were largely contained on Monday with the EUR rising slightly from 1.2094 to 1.2131, the AUD and NZD traded in tight bands and the Japanese Yen fell slightly, allowing USD/JPY to break through 110 again. The impetus for the higher EUR was a better than expected industrial production report out of the Eurozone which pointed to a broadening of the economic recovery, particularly in the manufacturing sector.

In commodities, crude oil futures reached their highest level since May 2019. Copper and Iron Ore both rose 0.3% and 1.1% respectively with gold falling 0.9% throughout trade.

Expected Ranges

AUD/USD: 0.7690 - 0.7760 ▼

AUD/EUR: 0.6330 - 0.6385 ▼

GBP/AUD: 1.8200– 1.8350 ▲

AUD/NZD: 1.0740 - 1.0850 ▲

AUD/CAD: 0.9320 - 0.9400 ▼

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