AUD/USD steadies as Fed funding expectations fall

OzForex Research OzForex Foreign Exchange

Daily Currency Update

The Australian dollar edged upward through trade on Tuesday, climbing back through US$0.6650 amid modest US CPI data and easing fears the US financial system will collapse. Trading conditions remain volatile but signs the worst is over are beginning to emerge. Two- and ten-year treasury rates climbed significantly through trade on Tuesday while key bank stocks recovered, and risk appetite improved. Against this landscape the AUD climbed off intraday lows sought of US$0.6635, seen toward the end of the domestic session, to mark intraday highs at US$0.6695. As trading conditions calmed, and risk appetite improved the AUD found support in shifting Fed funding expectations. US CPI printed more or less in line with expectations yet remains uncomfortably high and affords the policy makers license to continue tightening financial conditions. Future pricing now has a 25-basis point hike priced in next week but beyond this, the likelihood of a pause in April has lifted with just one additional hike priced into May and 50 basis points of easing expected through H2. The shift in peak Fed funding expectations has helped the AUD move off lows south of US$0.66 and opens the door for a longer-run recovery as we move through Q2. Our attentions remain squarely affixed on the US banking crisis as the health of the US financial system continues to overshadow key macroeconomic data sets. Further calming of contagion fears should help bolster risk appetite and allow the focus to shift back toward macro themes.

Key Movers

Wild trading conditions across financial markets continue to plague markets as the fallout from the collapse of Silicon Valley Bank and Signature banks reverberates among investors. As treasury yields and key bank stocks fluctuate dramatically price action across currency markets has shown a distinct lack of volatility. Improved risk sentiment and a recovery in the global rates backdrop dampened demand for the safe-haven yen and helped lift risk-correlated currencies like the AUD and NZD. While the USD pushed back toward ¥134 against the JPY the GBP and euro held firm consolidating gains above US$1.21 and US$1.07 respectively. Changing expectations surrounding Fed policy has helped lift key majors as the narrative flips again. While our focus remains on the health of the US banking system dissipating fears of contagion brings our focus back to key macro themes. Chinese activity data, the UK budget and US retail sales data headline the day’s docket ahead of an all-important European Central Bank policy update Thursday.

Expected Ranges

AUD/USD: 0.6580 – 0.6730 ▲
AUD/EUR: 0.6180 – 0.6320 ▲
GBP/AUD: 1.8080 – 1.8320 ▼
AUD/NZD: 1.0680 – 1.0780 ▲
AUD/CAD: 0.9080 – 0.9180 ▼

Author

OzForex Research

OzForex Foreign Exchange

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