A further slowing in growth
The AUD/USD opened the month at 0.7170, made a high of 0.7283 on June 3 and fell to its monthly low of 0.6851 on June 15.
The AUD/USD opened the month at 0.7170, made a high of 0.7283 on June 3 and fell to its monthly low of 0.6851 on June 15. Last month, the AUD was driven in large part by swings in global risk sentiment, which was predominantly negative, headlined by the fall in the US S&P 500 into ‘bear market’ territory (fall of >20% from its highs) and accounting for the AUD’s mid-month return to back below 0.70.
Prior to the big mid-month slide, the beginning of June had seen a continuation of the mid/late May AUD rebound off its April/early May falls. Early June support was drawn from the positive narrative coming out of China hinting at easing of covid restrictions in Shanghai and elsewhere and then the RBA’s unexpectedly large 50bps Cash Rate rise on June 7 (to 0.85%). Positive reaction proved short lived however, in part since the RBA’s newfound ‘hawkishness’ saw money markets pare back somewhat their pricing for the RBA’s ‘terminal’ rate.
A major catalyst for the mid-month global equity market sell-off and attendant AUD decline was the much higher than expected US May CPI (+8.6% yoy from 8.3% and 8.3% expected), quickly followed by a jump in US Consumer Inflation Expectations (3.3% from 3.0%). This saw markets move to expect a 75bps rate hike at the following week’s FOMC meeting (a view encouraged by a WSJ report from a renowned ‘Fed watcher’ a few days before the meeting). While a 75bps rate rise was duly delivered, reaction on the day (USD down, AUD up) came more from Fed chair Powell comments noting he didn’t expect future moves of this size to be ‘common’.
Nevertheless, as equity markets continued to head south, the AUD/USD resumed its slide. Another hawkish central bank surprise occurred in Europe with the Swiss National Bank lifting its policy rate by 50bps (to -0.25%) on June 16. The Bank of England also raised rates, by an as expected 25bps. Local money markets started flirting with the notion of the RBA raising rates by 75bps in July, but Governor Lowe hosed down this speculation in a June 21 speech, saying the Board would again discuss either +25bps or 50bps next month, as was the case in June. AUD/USD declined as a result.
AUD/USD enjoyed a modest recovery towards the end of the month alongside a better showing by US equities, but the latter struggled to hold gains into month-end and, despite some better-than-expected local data (Retail Sales) and from China (PMI) AUD struggled, closing out the month at 0.6903.
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