Australian dollar (AUD) strengthens after slightly hawkish RBA
The Australian dollar was volatile yesterday after the Reserve Bank of Australia (RBA) held the cash rate steady, a decision widely anticipated by the market.
The slightly hawkish tone of the statement initially caused the AUD to rally. However, the Aussie weakened during the accompanying press conference, as the Governor mentioned that a rate rise was not considered at this meeting by the Board.
The RBA continues to maintain flexibility, with no definitive stance on future rate movements, while inflation risks remaining a focal point.
Overnight the AUD has continued to strengthen, most notably against the US dollar, where it is currently sitting at the highest rate since February 2023.
Today, the release of the August CPI Indicator is in focus, with expectations of a 2.7% year-on-year increase. The RBA has reiterated the need to focus on core inflation, as energy rebates have skewed headline CPI figures.
New Zealand Dollar (NZD) breaks through resistance
The New Zealand dollar broke through resistance overnight, trading at its highest level against the US dollar since December 2023. A combination of a weaker US dollar and renewed Chinese stimulus helped boost the NZD, positioning it as the top performer among the G-10 currencies over the past 24 hours.
NZD/AUD also saw gains, with RBA Governor Michele Bullock’s press conference lending support to the cross. The softening USD and favourable external conditions have contributed to the NZD’s upward momentum.
The release of the latest inflation figures out of Australia will be the main focus for the pair today.
US dollar (USD) pressured by risk-on flows
The US dollar stumbled yesterday as the launch of new stimulus measures by China stoked market risk appetite and limited demand for safe-haven assets.
This downturn in USD was then reinforced as the latest US consumer confidence index reported its largest decline in over three years.
US data is in short supply today, potentially leaving the US dollar vulnerable to further losses if market sentiment remains positive.
Pound (GBP) supported by BoE Bailey’s ‘gradual’ rate cut comments
The pound (GBP) was underpinned during yesterday’s session by comments from Bank of England (BoE) Governor Andrew Bailey.
Speaking in an interview with KentOnline, Bailey suggested that UK interest rates will fall ‘gradually’, reinforcing expectations the BoE will be less aggressive than its peers in unwinding its monetary policy.
With UK economic data thin on the ground today, the pound may struggle to find direction.
Euro (EUR) buoyed by USD weakness
The euro (EUR) trended broadly higher on Tuesday, with the single currency drawing support from its negative correlation with the US dollar (USD).
However, these gains remained fairly modest in scope, as the upside in the euro was tempered by data showing that German business sentiment deteriorated to an eight-month low in September.
In the absence of any notable EUR data, the single currency may struggle to attract support today as the focus may shift back to the Eurozone’s increasingly gloomy economic outlook.
Canadian dollar (CAD) underpinned by rising oil prices
Despite being pressured by its positive correlation with the US dollar, the Canadian dollar (CAD) was able to hold its ground on Tuesday as the commodity-linked currency was underpinned by rising oil prices.
Looking ahead, movement in CAD is likely to remain tied to oil price dynamics today. If crude prices continue to rally it may extend additional support to the ‘loonie’.