AUD/USD Breaches 0.7 Mark to Reach 3 Year Highs
AUD
The Australian Dollar is the heavyweight of the currency markets this morning. Reaching the 0.70 milestone against the US Dollar, which comes at a critical juncture as the market braces for December and Q4 CPI data today; headline inflation is tipped to accelerate to 3.5%, providing the RBA with a clear runway for a potential rate hike as early as next week. While the ASX 200 resumed trade up 0.9% following the Australia Day long weekend, the broader story remains one of Australian resilience against a crumbling US Dollar, which has been battered by a combination of domestic political unrest and a dramatic loss of institutional confidence in the Federal Reserve. In the commodities space, Gold has risen past $5,100 per ounce and Silver hitting new records as investors seek protection from the collapse of institutional norms.
USD
AUDUSD has surged to a three-year high this morning of 0.7011 against the Greenback, it’s the strongest level since January 2023. The US remains in a state of freefall as the DXY approaches a four-year low, despite Donald Trump saying he was not concerned by steep falls in recent days. A mixed session on Wall St. saw the Dow Jones trading -.9%, the Nasdaq +1%, and the S&P 500 +.5% late in the North American session. Political instability is reaching a fever pitch following federal agents' fatal shooting of a second citizen in Minneapolis, while the Federal Reserve faces its most chaotic start to a year in history. With Jerome Powell currently under a criminal probe by the DOJ and Donald Trump publicly demanding aggressive interest rate cuts, markets are looking toward tomorrow morning’s FOMC decision with extreme caution. Although the Fed is widely expected to hold rates at 3.75%, any commentary regarding Fed independence or future cuts could accelerate the current USD rout, which has already seen the Greenback lose its footing across all G10 peers.
EUR
The AUDEUR cross is holding firm at 0.5822, maintaining its best levels in ten months as Europe navigates its own shifting geopolitical landscape. Sentiment in the bloc has been bolstered by the signing of the "mother of all trade deals" with India, a landmark agreement that will see tariffs slashed on 95% of goods, potentially doubling EU exports to the region by 2032. European equities closed mixed with the DAX and CAC closing -0.2% and +0.3% respectively. With very little Eurozone data expected this week outside of a low-impact data dump on Friday, investors are currently weighing the long-term benefits of the India trade pact against the immediate yield advantage offered by the RBA.
GBP
AUDGBP opens flat at 0.5063, maintaining its position above the 0.5000 handle to mark a one-year high. The FTSE closed in the green at +0.6%. Sterling, like many of its peers, has benefitted from the broad USD weakness, but it remains the laggard when compared to the Aussie's rate-hike-fueled momentum. British markets are keeping a close eye on the escalating "debasement trade," which has seen investors flee government bonds in favor of hard assets. With no major UK data on the immediate horizon, the cross is being driven by the widening divergence between a hawkish Australia and a UK economy caught in the global crosswinds of US policy uncertainty and trade friction.
NZD
The AUD/NZD remains elevated around the 1.1599 level, hovering near decade highs despite a slight dip in overnight trade. Both currencies have found support as the US peer buckles under the weight of trade and geopolitical uncertainty, but the Aussie’s domestic inflation outlook gives it the edge over the Kiwi.