Aussie bounces on increasing expectations for Fed rate cut

AUD - Australian Dollar

The AUD moved higher through trade on Monday, shrugging aside broad based risk off sentiments to push back through 0.71 US cents. Having struggled to break outside a 20 point range throughout the domestic session the Aussie dollar bounced of intraday lows at 0.7068 to touch 0.7114 as concerns the US growth story is faltering after the inversion of the US long run bond yield. 10 year bond notes inverted for the first time in 12 years on Friday and is perhaps the first indication the US is headed for a recession.

With little of note on the domestic docket the AUD has taken it’s cues from offshore stimuli yet continues to be bound by short term ranges between 0.7020 and 0.7150 with psychological support intact at 0.70. With monetary policy support for the USD waning there is scope for a sustained short-term upside and a possible break back above 0.7150 if we see a period of prolonged risk appetite. That said, our broader outlook remains bearish with the AUD to correct lower leading into H2 and the end of the year. Attentions today remain off shore, with little of note on the domestic docket outside commentary from RBA assistant Governor Ellis’s address to members of the Housing Industry Association.

Key Movers

The US Dollar sell off continued through trade on Monday as markets appetite for risk faltered and investors drove hard toward the JPY and CHF as haven assets. Policy support for the USD has been all but eroded through the last 3 weeks, a fact affirmed by the Fed at last weeks FOMC policy meeting. The Fed has moved aggressively away from it’s previous tightening cycle as market indicators call for the world’s leading central bank to cut rates. The US 10 year bond yield curve moved below the Fed fund rate on Monday, touching its lowest level in 16 months, a strong sign the US growth narrative is coming to an end and the worlds largest economy may be headed for a recession. We expect further short-term USD weakness.

The Pound fell back below 1.32 on Monday as Brexit headlines again dominated direction. With just 4 days left before the March 29 deadline investors are becoming increasingly wary a deal will not be reached in time. While the EU has promised a two week extension through to April 12, it appears unlikely Prime Minster May will be able to garner the support to force through the current Brexit Bill, a fact supported by the PM herself as she affirmed on Monday there was not a strong enough backing to warrant a 3rd parliamentary vote at this time. We expect Sterling will continue to bounce between 1.30 and 1.33 until a clearer picture is available.

Expected Ranges

AUD/USD: 0.7020 - 0.7150 ▲

AUD/EUR: 0.6220 - 0.6330 ▲

AUD/NZD: 1.0220 - 1.0350 ▲

GBP/AUD: 1.8120 - 1.8720 ▼

AUD/CAD: 0.9480 - 0.9580 ▲