Happy New Year to everyone, I hope that you're all back and settled at work now after a nice Christmas and New Year period and ready to take on 2023!
The AUD/USD exchange rate has started the year very positively after moving off the low at 0.6722 to reach a high last week at 0.7063, the highest rate we have seen since August 2022.
In what would normally seem like a quiet time of year, the AUD has good gains after news that China was going to start "opening up again" after several covid outbreak, lockdown and threat of closures again like we seen a while ago, after the news of the restrictions being lifted, the Australian dollar was back in favour and back hanging around the 0.70c mark.
With so many different reports coming out of the US around economic data, which has led to many reports around the FOMC and interest rates, the USD has seen a big sell off, the DXY (US Dollar Index) which reached a 20 year high towards the end of 2022 has seen a drop of almost 10% as investors are very unsure as to the state of the US economy.
US retail sales and PPI (Producer Price Index) provided that catalyst for volatility with both sets of numbers missing estimates. Several Federal Reserve speakers also reiterated their hawkish stance in the aftermath, and this highlighted that US interest rates might go higher than what the market is currently pricing in.
Domestically, the fourth quarter Australian CPI (Consumer Price Index) is due out on Wednesday, kicking off a busy week locally. A Bloomberg survey of economists predicts a year-on-year headline rate of 7.6%, up from 7.3% in the third quarter.
According to the RBA, inflation will peak at 8% later this year before easing into next year, remaining well above their mandated 2-3% target band.
A reading of 7.6% or higher would signal a problem for the RBA and could change expectations for their February monetary policy meeting. The futures market is currently pricing in a 15 basis point increase in the cash rate target, reflecting the uncertainty between a 25 basis point increase and no change, and this will leave uncertainty on the table for the AUD, as we usually see it move off the back of interest rate changes, or even commentary.
A few key things to look out for this week, so if you have payments due in the coming weeks/months, taking advantage of exchange rates around 0.70c could be a decision that helps you sleep better at night knowing that the risk is off the table at close to 6 months highs!
The last 4/5 times we have reached around 0.70c since early 2022, it's earlier sold off quickly, or given some false hope and moved up a little just to be sold off again.
Please give me a call if you want to run through any options.