AUD – Australian dollar
The Australian dollar tracked within a narrow range through Monday as markets extended Friday’s sell-off amid a consolidated shift in US rate expectations and an uptick in US yields. Markets have now priced just one Fed rate cut for 2025, a dramatic reversal in expectations compared to where we were in just October last year.
With rates expected to remain higher for longer in the US, treasury yields extended their rally, driving the USD higher and holding the AUD below US$0.62. The question now is, where do we go from here? Can the USD continue its upswing or is a correction due? Is the move driven by persistent inflation concerns or Trump uncertainty? For now, it appears both factors are driving direction.
Our attention is keenly affixed to policy announcements through the early days and weeks of Trump’s second term as we attempt to assess how aggressive the President will be in pushing an America-first agenda. If we see a repeat of 2016 wherein his pre-office bark was worse than his bite the AUD could enjoy a swift and rapid recovery. An emboldened Trump bent on increasing tariffs could propel the AUD nearer lows suffered through the early days of the Pandemic.
Key Movers
The US dollar advance continued through trade on Monday, fuelled by a rebalancing in Fed rate expectations and a surge in US treasury yields. Markets extended Friday’s post-non-farm payroll move into trade on Monday, recalibrating expectations for Fed rate cuts through 2025. There is now just one 25-point rate cut priced through the end of the year, marking an incredible about-turn and driving an extended uptick in US treasury yields.
Ten-year yields jumped to 4.79%, a 14-month-high, on Monday fuelling USD gains against all majors. In contrast, commentary from the European Central Bank chief economist suggested growth across the EU will undershoot expectations as nearly 1% of rate cuts are priced in through 2025. The divergence in policy between the US and EU is weighing on the euro and prompted a move below 1.02 overnight. The question now will we see a move toward parity?
Our attention now turns to commentary from central bank officials, in particular, a speech from the Bank of Japan’s deputy Governor as we seek any hint policymakers are lining up a rate hike later this month.
Expected Ranges
AUD/USD: 0.6100 – 0.6220 ▲
AUD/EUR: 0.5950 – 0.6050 ▲
GBP/AUD: 1.9600 – 1.9900 ▼
AUD/NZD: 1.1000 – 1.1100 ▲
AUD/CAD: 0.8820 – 0.8920 ▲