AUD consolidates as global rates continue relentless uptick
Wednesday 20 April, 2022
Daily Currency UpdateThe Australian dollar staved off a break below 0.7350 through trade on Tuesday having suffered a deeper correction over the Easter long weekend. Markets largely ignored the release of the RBA’s minutes despite strong hints policymakers will be ready to move on rates in June. Having chased the AUD higher in the wake of the policy update 2 weeks ago, markets have already priced in a June rate hike and move toward tighter monetary policy and our attentions are now fixed on domestic wage data and CPI inflation updates. After touching intraday lows at 0.7345, the AUD tested a break back above 0.74 before consolidating into this morning’s open where it buys 0.7375 US cents.
With little of note on today’s domestic macroeconomic ticket, our attentions remain on the broader global risk narrative and global real yield performance. Further commentary from key Fed officials overnight continues to support an aggressive FOMC shift toward tighter monetary policy. Real yields are approaching 0% for the first time since the pandemic while 10-year rates close in on 3% for the first time in 4 years. The acceleration in US yields has been a primary catalyst driving the post RBA correction and will continue to weigh on the AUD through the coming weeks.
Key MoversWhile price action across major currencies was somewhat subdued through trade on Tuesday, the relentless uptick in US rates and real yields pushed the USD toward and through 20-year highs against the Japanese yen while the Swiss franc struggled to find any real support. Having started April below 120, the USD surged toward 129 marking intraday highs above 128.91 as the uptick in US 10-year real yields and the suppression of Japanese rates under the current yield curve control platform saw the gap in yield return widen, accelerating demand for the US dollar. Markets appear intent on driving the JPY lower in a bid to elicit a response from the BoJ which finds itself stuck in an unenviable position. Inflation is still too low to consider normalising monetary policy yet the correction in the JPY over the last 6 weeks has prompted increased political pressures as the cost of imported goods skyrocket and near-term price pressures increase. With the Swiss National Bank facing a similar predicament and refusing to move off official interest rates at -0.75% the franc fell a further 0.7% overnight and continues to lag most major counterparts. Yields and global rate performance continue to dominate direction and anything that purports to shift the yield gap is going to drive direction through the near term.
- AUD/USD: 0.7320 - 0.7450 ▲
- AUD/EUR: 0.6810 - 0.6920 ▲
- GBP/AUD: 1.7520 - 1.7720 ▼
- AUD/NZD: 1.0920 - 1.0990 ▲
- AUD/CAD: 0.9250 - 0.9350 ▲