Australian Dollar Forecast: Bearish
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The Australian Dollar defied gravity last week, finishing higher in an environment that would typically see the unit come under pressure. Risk sentiment soured and the RBA may not be hiking again.
On the one hand, strong job numbers reveal a robust domestic economy, but conversely, the global macro-outlook has deteriorated at a rapid rate with a number of banks seeking rescue packages.
In this context, the interest rate market is now pricing in the next move by the RBA is to cut in June. At the beginning of this month, the market had pencilled in 4.35% as the terminal rate, the peak in the cash rate before a cut could be envisaged, but it is now suggesting that the current cash rate of 3.60% is the terminal rate.
Last Thursday, data from the Australian Bureau of Statistics (ABS) showed the unemployment rate dipped to 3.5% in February against the 3.6% anticipated and 3.7% prior. 64.6k Australian jobs were added in the month, which was above the 50k anticipated and -10.9k previously.
The tight domestic labour market was overlooked for the evolving crisis of confidence in banking across the US and Europe.
The varying rescue packages for SVB Financial, Signature Bank, First Republic Bank and Credit Suisse appear to have allayed markets for now. When the Federal Deposit Insurance Corporation (FDIC) stepped in to assure depositors at the banks in peril, they said that they know of other banks in a similar situation.
Elsewhere, the FT is reporting that UBS is considering acquiring all or part of Credit Suisse.
So, while the situation has calmed down for now, there could be more bumps in the road ahead before this banking saga is resolved.
The implications of the aggressive tightening of monetary policy may reveal other fractures within the global financial infrastructure. This a the lingering concern for markets, and should further issues arise, it might seem likely that risk assets such as AUD/USD could come under scrutiny.
While the macro perspective appears likely to rattle AUD/USD, fundamentals such as bond spreads might revert to exerting potential influence over currencies
AUD/USD AGAINST AU – US 10-YEAR GOVERNMENT BOND SPREADS
Please contact Daniel via @DanMcCathyFX on Twitter
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