AUD outperforms as all eyes turn toward the RBA
Tuesday 2 May, 2023
Daily Currency UpdateThe Australian dollar outperformed through trade on Monday, edging off key supports to test a break above US$0.6650, despite renewed US banking sector uncertainty. First Republic Bank became the latest casualty of this banking crisis officially failing overnight, making it the second largest US bank failure in history, unseating Silicon Valley Bank.
Normally we would have anticipated a higher degree of turmoil following such an event, but poor earnings data last week suggested the bank was on the precipice of collapse. With JP Morgan swiftly stepping in to acquire the First Republic Bank in a Government led deal, fears of further contagion and fallout were minimised.
With little impact on risk demand, the AUD climbed toward intraday highs just short of US$0.6670 before moving back below US$0.6650, to track between US$0.6625 and US$0.6625.
Our attention now turns to the RBA policy meeting. We anticipate rates will remain at 3.6% and are keenly attuned to any signal from policymakers that suggest we may have reached the peak in this current tightening cycle. With the market divided and many anticipating a peak underlying cash rate of 3.85%, forward guidance will be key in governing near-term direction.
With the Fed expected to raise rates by 25 basis points on Wednesday, a dovish RBA could see the AUD test supports US$0.6580 again.
Key MoversThe USD was largely stronger through trade on Monday with the DXY dollar index up 0.5% on the day, following wholesale losses for the euro, GBP and JPY. After outperforming in April, both the euro and GBP traded lower giving up 1.10 and 1.25 respectively. Stronger than anticipated US ISM manufacturing data helped fuel an uptick across US treasury yields.
The yield curve steepened with the 10-year rate, jumping to 3.57%, as markets look to price in another 25 basis point Fed rate hike. With treasury yields rising and global rates rallying the Japanese yen underperformed. The worst performed on the day, the yen gave up eight-tenths of a per cent compounding Friday’s 1.7% sell-off, as fall out from the Bank of Japan’s April policy update and commitment to ultra-easy monetary policy continues.
The USD surged through 137 to mark intraday highs just north of 137.50, its highest level in nearly two months.
Our attention now turns to the RBA policy meeting today ahead of the Fed policy update tomorrow. With Wall Street Journal Columnist and Fed Whisperer Nick Timiraos indicating the Fed is on track to lift rates by 25 basis points and deliberate the merits of pausing future rate adjustments, we are keenly attuned to the post-meeting statement and commentary from Fed Chair Jerome Powell in guiding near-term direction.
- AUD/USD: 0.6570 - 0.6730 ▲
- AUD/EUR: 0.5980 - 0.6120 ▲
- GBP/AUD: 1.8680 - 1.9020 ▼
- AUD/NZD: 1.0650 - 1.0820 ▲
- AUD/CAD: 0.8880 - 0.9080 ▲