The Australian dollar earns its stripes above 0.70
The Australian dollar touched another fresh high last week at 0.7147, but it was ultimately something of a challenging and choppy week of price action which saw some late week fatigue set in, sending AUD/USD back below 0.71. The week ahead looks to be no different and some important local event risk looms - the minutes from the RBA's Feb meeting, Jan jobs and Q4 wages price index. The overseas calendars are a little less punchy this week, but include the always market moving first release for US GDP (Q4), US PCE deflators and Jan global PMIs.
The Australian dollar earns its stripes above 0.70
The Australian dollar touched another fresh high last week at 0.7147, but it was ultimately something of a challenging and choppy week of price action which saw some late week fatigue set in, sending AUD/USD back below 0.71. The week ahead looks to be no different and some important local event risk looms - the minutes from the RBA's Feb meeting, Jan jobs and Q4 wages price index. The overseas calendars are a little less punchy this week, but include the always market moving first release for US GDP (Q4), US PCE deflators and Jan global PMIs.
AUD remains top YTD performer
AI valuation angst has been looming over markets for a number of months now, and periodically it's in the driver's seat, making for very bumpy conditions in global risk assets. The latest bout has been unfolding for most of this month and has seen the Nasdaq down almost 7%. This washed through US fixed income markets last week, sending US yields down to just below 4.05%. On some of the more aggressive down days, AUD's traditional risk characteristics kick in, and the unit struggles to keep its head above water. This was the case on a couple of instances last week.
But on the whole, a hawkish RBA, deep seated antipathy towards the US dollar, and robust commodity prices (ex-iron ore), are keeping the AUD well supported above 0.7000. CNY is an important regional anchor for Asia-Pac currencies and ongoing structural gains in CNY auger well too. As it stands right now, the Australian dollar is jostling for pole position in the YTD G10 performance tables with the Norwegian Krone.
It was a banner week for AUD on several crosses last week, with multi-year/multi-month highs hit on a range of crosses. AUD/NZD broke to fresh multi-decade highs on Thursday at 1.1807, AUD/JPY touched 110.79 on Monday, and mid last week AUD/EUR finally traded above 0.6000. AUD/GBP is getting in on the act too, briefly trading up through 0.5200 last week.
By week's end, some of AUD's bullish momentum on cross faded, and the week ahead has a lot of global holidays meaning thin market conditions and lower participation. China is out for Lunar New Year and the US has President's Day. AUD and her crosses should expect a lot of volatility around this week's local jobs number on Thursday.
Fed terminal reprices back below 3%
Last week's US data delivered a mixed bag of signals. Jan nonfarm payrolls printed stronger than expected with the unemployment rate ticking down 0.1% to 4.3% and jobless claims ticking down week on week. Horrendous downward revisions to the 2025 payrolls profile took some shine off the number, but at the very least, the Jan figures show some welcomed stability, if not, recovery.
However, US rates seemed to place more weight on CPI and retail sales. The former, printed in line with expectations at 0.3% for the month with inflation remaining sticky across services and recreation. Meanwhile retail sales was unchanged and weaker than consensus expectations.
Against this backdrop and the aforementioned AI angst, US yields pushed lower last week. US 10 year yields are down 25bp from their early Feb peaks. The implied terminal Fed rate has dropped over the last few weeks too, from the 3.2-3.3% area to just below 3.00%.
Gold and silver prices continued to pull back over Monday afternoon, clearly still experiencing some aftershocks from the eruptive sell-off in late Jan, however remain up 15% and 5% respectively.
Australia's consumer confidence also took a small hit in Feb, declining -2.6%, meanwhile NAB Jan business conditions fell 2pts to 7.0, with the expectation of further rate hikes likely dampening sentiment.
The week ahead...
Australia's Jan labour market data (Thur) and RBA Feb MPC minutes (Tue) headline the domestic calendar this week. Markets will assuredly be watching out for signs of lingering tightness given December's unexpected drop in unemployment down to 4.1%. The RBA Board already signalled at their latest meeting that they are "uncomfortable" with inflation remaining as high as it is. Going into this number, markets assign a low probability to a back-to-back March increase. Meanwhile, an 80% probability of a hike is ascribed by OIS pricing for their May meeting.
The RBNZ also meets this week (Wed). This is the first Board meeting to be chaired by Anna Breman as Governor. Virtually every data point in recent months has been screaming "rebound", but the Board will recognise there is also a lot of excess capacity, and so they will be in no rush to move. Our colleagues in NZ expect the RBNZ to be on hold until December, and then to rapidly start taking policy higher through 2027. The OCR is expected to reach 4% by end-2027 and peak at 4.25% in early 2028.
In the US, the FOMC's Jan MPC meeting minutes are due (Wed), with Jan PCE and advanced Q4 GDP data in focus. Consensus for the advanced GDP is a surprisingly robust 3% (annualised), but that's what the partials are telling us despite the record long US govt. shutdown in Q4.
Monday
- US markets closed for President's Day.
- Canadian markets closed for Family Day.
- Fedspeak; Bowman.
Tuesday
- RBA Feb MPC meeting minutes.
- Lunar New Year begins - many Asia-based markets closed.
- UK Dec Labour Market Report
- US Feb Empire Manf. Survey
- Canada Jan CPI
- Fedspeak; Barr, Daly.
Wednesday
- Australia Jan Westpac Leading Index, Q4 Wage Price Index
- RBNZ MPC meeting
- UK Jan CPI
- US Dec Housing Starts, Durable Goods (Prelim.)
- FOMC Jan MPC meeting minutes., Fedspeak; Bowman
Thursday
- Australia Jan Labour Market Report
- Fedspeak; Goolsbee, Bostic, Bowman, Kashkari.
Friday
- Australia, Japan, UK, US Feb S&P Global Manf. PMI (Prelim.)
- Japan Jan CPI
- Eurozone Feb HCOB Manf. PMI (Prelim.)
- US Dec Personal Income/Spending, PCE, Q4 GDP (Advanced)
- Fedspeak; Bostic.
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