Coal prices continue to surge, is the AUD poised to break back above 0.74 US cents?

AUD - Australian Dollar The Australian dollar tracked sideways through trade on Tuesday, unable to build on Monday’s extension yet able to hold onto gains above 0.73 despite broader US dollar strength. With little of note on the domestic macroeconomic ticket, investors looked offshore for guidance and direction. China’s energy crisis remains a key focal point. Officials continue to sure up supplies to ensure no outages across the impending winter, driving coal prices another 7% higher. The price of high-grade thermal coal has skyrocketed through the last 45 days, up some 90%, underpinning demand for the AUD and more than making up the August sell off across other key commodity assets, namely iron ore and copper. The AUD touched intraday highs at 0.6390 before correcting lower into this morning’s open. Our attentions today turn to US CPI inflation. Renewed inflationary concerns are dominating markets at present as central banks shift away from a belief price rises are transitory and move toward enacting measures to prevent further aggressive price hikes. Deputy BoE governor Cunliffe is due to hit the wires, and analysts will be keenly attuned for any further signal the Bank of England’s Monetary Policy Committee is preparing to raise interest rates. Markets have priced in a 15basis point hike in November, so there is scope for volatility should any surprise be proffered. Having broken above 0.54 against the GBP, we are keenly watching supports at 0.5390 to see if the AUD can hold onto and extend recent gains. Key Movers The USD remains well bid, extending gains against key pairs, driving the dollar index toward 13-month highs. The euro fell to a 15-month low overnight, testing supports at 1.1525 as concern surrounding rapidly rising inflationary pressures and the ongoing energy saga continue to envelop the single currency. Compounding losses is rising expectations the ECB will significantly lag the Fed and other major central banks in normalising monetary policy. Commentary from key Fed policymakers through trade on Tuesday suggest an announcement around a program of tapering QE will be announced in November, despite a softening in labour market data. The further divergence in monetary policy expectations has seen a widening in bond yields, driving further demand for the USD and a move away from the euro. The Japanese yen extended the week's early losses as the USD pushed through 113.50 to mark 113.65 a multi-year-high. The spectre of low inflation and long run accommodative monetary policy has forced investors to give up the yen in search of a higher yield return. The GBP is largely unchanged despite ongoing debate between the UK and EU regarding border protocol in Northern Ireland. Markets took little notice of reports that tariff’s may be introduced if the UK does not change tact, yet it is something we are monitoring closely. The UK economy can hardly afford the imposition of import tariffs as it grapples with an ongoing energy crisis, inflationary pressures, and the broader Pandemic recovery. Expected Ranges AUD/USD: 0.7290 - 0.7420 ▲AUD/EUR: 0.6290 - 0.6420 ▲GBP/AUD: 1.8380 - 1.8620 ▼AUD/NZD: 1.0520 - 1.0630 ▲AUD/CAD: 0.9080 - 0.9220 ▼

Coal prices continue to surge, is the AUD poised to break back above 0.74 US cents?

AUD - Australian Dollar

The Australian dollar tracked sideways through trade on Tuesday, unable to build on Monday’s extension yet able to hold onto gains above 0.73 despite broader US dollar strength. With little of note on the domestic macroeconomic ticket, investors looked offshore for guidance and direction. China’s energy crisis remains a key focal point. Officials continue to sure up supplies to ensure no outages across the impending winter, driving coal prices another 7% higher. The price of high-grade thermal coal has skyrocketed through the last 45 days, up some 90%, underpinning demand for the AUD and more than making up the August sell off across other key commodity assets, namely iron ore and copper. The AUD touched intraday highs at 0.6390 before correcting lower into this morning’s open.

Our attentions today turn to US CPI inflation. Renewed inflationary concerns are dominating markets at present as central banks shift away from a belief price rises are transitory and move toward enacting measures to prevent further aggressive price hikes. Deputy BoE governor Cunliffe is due to hit the wires, and analysts will be keenly attuned for any further signal the Bank of England’s Monetary Policy Committee is preparing to raise interest rates. Markets have priced in a 15basis point hike in November, so there is scope for volatility should any surprise be proffered. Having broken above 0.54 against the GBP, we are keenly watching supports at 0.5390 to see if the AUD can hold onto and extend recent gains.

Key Movers

The USD remains well bid, extending gains against key pairs, driving the dollar index toward 13-month highs. The euro fell to a 15-month low overnight, testing supports at 1.1525 as concern surrounding rapidly rising inflationary pressures and the ongoing energy saga continue to envelop the single currency. Compounding losses is rising expectations the ECB will significantly lag the Fed and other major central banks in normalising monetary policy. Commentary from key Fed policymakers through trade on Tuesday suggest an announcement around a program of tapering QE will be announced in November, despite a softening in labour market data. The further divergence in monetary policy expectations has seen a widening in bond yields, driving further demand for the USD and a move away from the euro.

The Japanese yen extended the week's early losses as the USD pushed through 113.50 to mark 113.65 a multi-year-high. The spectre of low inflation and long run accommodative monetary policy has forced investors to give up the yen in search of a higher yield return.

The GBP is largely unchanged despite ongoing debate between the UK and EU regarding border protocol in Northern Ireland. Markets took little notice of reports that tariff’s may be introduced if the UK does not change tact, yet it is something we are monitoring closely. The UK economy can hardly afford the imposition of import tariffs as it grapples with an ongoing energy crisis, inflationary pressures, and the broader Pandemic recovery.

Expected Ranges

AUD/USD: 0.7290 - 0.7420 ▲

AUD/EUR: 0.6290 - 0.6420 ▲

GBP/AUD: 1.8380 - 1.8620 ▼

AUD/NZD: 1.0520 - 1.0630 ▲

AUD/CAD: 0.9080 - 0.9220 ▼