NAB’s Chief Economist, Alan Oster provides his thoughts on the Australian and Global economy.
The AUD in November AUD/USD returned to ‘normal’ levels of monthly volatility in November.
AUD/USD returned to ‘normal’ levels of monthly volatility in November, almost matching its monthly average range of 3.48 cents (3.58c in November) – and a little above its 10-year average in percentage terms. The low of 0.6318 came on the first day of the month, and the high of 0.6676 on November 29 was its best level since 1 August. The biggest single driver of the AUD recovery last month was broad-based US dollar slippage, much of this stemming from the mid-month US CPI release where the 0.1% downside surprise to the core (ex food and energy) measure instilled a higher degree of confidence that the Fed is done with the current tightening cycle, and that rate cuts starting in H1 2024 are now more likely. AUD/USD November gains were not just about the USD, the pair appreciated 4.23% versus the ~3% gains for the DXY USD index. Improved global risk sentiment – to which AUD is more sensitive than most G10 currencies – was part of the story. More significant was the sharp drop in USD/CNY, from above 7.30 at the start of the month to below 7.15, turning a prior AUD headwind into a tailwind. News of a planned relaxation of prior (3%) budget deficit/GDP limits, plus the publication of a ‘Whitelist’ of property developers eligible for financial support, also proved helpful. Earlier in the month, the RBA hiked the cash rate by 25bps to 4.35%, but on the day the softer than expected tightening bias weighed on the AUD. Comments from Governor Bullock later in the month were seen as more hawkish, providing small-scale support for the currency.
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