Surge in bond rates and risk off move forces AUD below 0.74
Friday 22 April, 2022
Daily Currency UpdateThe Australian dollar contracted through trade on Thursday, slipping back below 0.74 US cents amid weaker appetite for risk and a resurgence in global bond rates. A raft of commentary from key global central bank figures prompted a sharp uptick in short end bond rates and a flattening in the yield curve as markets push to price in a faster pace of monetary policy tightening. The higher rate backdrop prompted caution across a cross section of risk assets with equities edging lower and commodity currencies giving up mid-week gains. Having touched intraday highs at 0.7460 the AUD declined steadily overnight, slinking back below 0.74 to touch intraday lows at 0.7370. Risk appetite and adjustments in yield curves continue to dominate direction and with momentum squarely behind an aggressive normalisation in Fed and FOMC policy, the AUD could face further headwinds through the near term.
Please note: There will be no commentary on Monday with the Anzac public holiday in Australia. Daily commentary will return on Tuesday the 26th of April.
Key MoversAnother resurgence in global rates and a softer appetite for risk prompted heightened volatility, as investors adjusted expectations following a string of commentary from key central bank figureheads. Fed President Powell continues to push the FOMC’s hawkish outlook, reiterating the strength within the domestic economy and an expectation inflation peaked in March. With a 50-basis point hike already priced in for next month, Powell’s comments only helped affirm investor expectations and drove a flattening in the yield curve as 2 and 5 year rates surged. Despite the resurgence in yields the USD failed to extend its recent run against the yen and euro with both currencies holding firm. Having succumbed to a swift and rapid correction through the last 3 weeks it seems markets have exhausted JPY selling pressure at least for now, with the currency trading near 128.30 on the day. The euro surged back above 1.0935 following commentary from a number of key policy makers. Market expectations for monetary policy tightening have accelerated in recent months and comments from key officials helped fuel a surge across short end European bond rates. A suggestion that the Asset purchase program will end in July, coupled with expectations rates will move above zero and into positive territory by year end fueled a euro uptick, before ECB president Lagarde offered a more measured outlook. Lagarde highlighted risks were skewed to the downside and while the ECB was set on normalising policy, it was not about to aggressively tighten rates as it battles to control burgeoning inflation expectations and zero growth. Our attentions remain with policy expectations and the response across global bond markets as we move toward the weekly close.
- AUD/USD: 0.7350 - 0.7470 ▼
- AUD/EUR: 0.6780 - 0.6920 ▼
- GBP/AUD: 1.7525 - 1.7820 ▲
- AUD/NZD: 1.0920 - 1.1020 ▼
- AUD/CAD: 0.9240 - 0.9320 ▼