Aussie bounces on increasing expectations for Fed rate cut

OzForex Research OzForex Foreign Exchange

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 ▲

Author

OzForex Research

OzForex Foreign Exchange

EUR/USD hits two-day highs near 1.1820

EUR/USD picks up pace and reaches two-day tops around 1.1820 at the end of the week. The pair’s move higher comes on the back of renewed weakness in the US Dollar amid growing talk that the Fed could deliver an interest rate cut as early as March. On the docket, the flash US Consumer Sentiment improves to 57.3 in February.

GBP/USD reclaims 1.3600 and above

GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.

Gold climbs further, focus is back to 45,000

Gold regains upside traction and surpasses the $4,900 mark per troy ounce at the end of the week, shifting its attention to the critical $5,000 region. The move reflects a shift in risk sentiment, driving flows back towards traditional safe haven assets and supporting the yellow metal.

Crypto Today: Bitcoin, Ethereum, XRP rebound amid risk-off, $2.6 billion liquidation wave

Bitcoin edges up above $65,000 at the time of writing on Friday, as dust from the recent macro-triggered sell-off settles. The leading altcoin, Ethereum, hovers above $1,900, but resistance at $2,000 caps the upside. Meanwhile, Ripple has recorded the largest intraday jump among the three assets, up over 10% to $1.35.

Three scenarios for Japanese Yen ahead of snap election

The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.

XRP rally extends as modest ETF inflows support recovery

Ripple is accelerating its recovery, trading above $1.36 at the time of writing on Friday, as investors adjust their positions following a turbulent week in the broader crypto market. The remittance token is up over 21% from its intraday low of $1.12.