AUD range bound despite wild bond market activity
Daily Currency Update
Despite the absence of headline newsflow and major macroeconomic data releases, price action across financial markets was choppy through trade on Monday. Bond yields fluctuated wildly with US 10-year yields tracking within an 18-basis point range overnight, clear evidence of the uncertainty plaguing investors.US rates pushed above 5% for the first time since the Global financial crisis, dragging the USD and DXY index upward before quickly backtracking back toward 4.83%. The swift reversal put pressure on the USD and allowed the AUD to bounce off lows near US$0.6290, pushing back above US$0.63 and toward US$0.6350. The lows seen earlier this month appear to be holding for now, yet a series of lower highs suggests the downtrend is still intact.
Our attention turns now to commentary from new RBA Governor Michelle Bullock as she delivers a speech on Australian Monetary Policy. While we expect Bullock will spruik the same message as her predecessor, any signal policymakers are preparing for another interest rate hike could lend the AUD near-term support ahead of tomorrow’s all-important quarterly inflation update.
Key Movers
Price action across currency markets reflected the volatility in bond yields on Monday with the USD surging on the heels of a bounce in treasury rates before giving up gains and closing lower on the day as yields retreated and risk sentiment improved. At one point the DXY index was up 0.2% after 10-year bond rates punched above 5%, the first foray above this threshold since 2007.The upswing was short-lived and yields quickly retreated allowing the euro and GBP to push higher, closing nearly three-quarters of a per cent higher on the day with the EUR/USD edging toward 1.07 and sterling punching above 1.2250. The yen proved remarkably resilient, despite the chaos enveloping bond markets, trading within a narrow range. The USD briefly traded above 150 before selling pressure prompted a move back toward 149.50.
Markets appear reluctant to extend beyond 150 for fear of intervention, yet with bond yields elevated, are unable to price a significant downward correction in USD/JPY. Price action has stalled across this paring and until we see a shift in monetary policy from the Fed and/or Bank of Japan we expect USD/JPY will continue to track between 147 and 150.
Our attention turns now to UK labour market data ahead of UK, European and US PMI numbers.
Expected Ranges
- AUD/USD: 0.6280 - 0.6420 ▲
- AUD/EUR: 0.5900 - 0.6000 ▼
- GBP/AUD: 1.9100 - 1.9500 ▲
- AUD/NZD: 1.0800 - 1.0900 ▲
- AUD/CAD: 0.8620 - 0.8720 ▲