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Currency market update

Latest currency update

Stay up to date with the latest FX market reports.

FX market update

Tue, 17 May 2022
Key themes
  • Release of RBA minutes and reports of China ending lock-downs has given the AUD momentum to come off recent lows.
  • RBA Minutes noted that "further increases in interest rates would likely be required to ensure that inflation in Australia returns to the target over time". It was noted that a 0.40% rise was considered in decision making.
  • RBA noted that inflation pressures have been driven by a combination of both domestic demand and global factors such as the war in Ukraine.
  • Market expectations of progressive rate hikes over the year ahead have been reinforced by the minutes.
Looking ahead
  • Domestic inflation and employment will be key to the trajectory of future rate hikes.
  • Break above 0.7100 will provide new support for AUD.
  • Markets will be looking for signs of a pause in the rise of the USD to 20 year highs, potentially driven by outlook for economic growth
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Previous currency updates

March 2022

FX market report

Tue, 29 Mar 2022
Key Themes
  • AUD/USD remains well supported and is sitting just below key resistance levels. However, the Fed’s commencement of a rate hike cycle is moderating AUD’s rise.
  • JPY at 6 year low against the USD with actions by Bank of Japan to defend it’s cap on interest rates adding to the existing softness from higher energy prices.
  • AUD/JPY is 15% higher from beginning of February, while AUDEUR is 10% higher

Looking Ahead

  • AUD near term direction may be influenced by the Budget, to be released on Tuesday, with a focus on any improvement in the deficit.
  • Later in the week USD employment and inflation data could provide further momentum to the USD, with stronger employment and higher inflation broadly expected, both will give an indication of the size of future Fed rate hikes.

 

FX market report

Tue, 22 Mar 2022
Key themes
  • AUD/USD continuing to push higher, breaching the 0.7400 level, however it is still very volatile with geo-political issues.
  • Commodities continue with their strength, Nickel prices have been an issue with it more than doubling in price only to see it fall again by 50% in March (Low 25,000 a ton to 50,000 a ton, now trading back at 37,000.
  • Crude Oil back above $100 mark trading at $107 after briefly trading below $100 last week
  • Volatility to continue in currency markets as investors balance the trade-off between holding ‘safe harbour’ and ‘risky’ assets. AUD the flavour at the moment
Previously
  • As expected, the US Federal Reserve delivered a 25bps rate hike last week. This is the first Fed Funds rate increase since 2018 and forecasts suggest the possibility of six further hikes in 2022. Domestically, the Australia Bureau of Statistics (ABS) reported a 4% unemployment rate. This represents the lowest Unemployment rate since 1974 and was in part driven by the increased participation rate of 66.4% as the Omicron wave started to slowdown.

FX Market report

Tue, 15 Mar 2022
Key themes
  • AUD/USD has softened from recent strength, due to market nervousness from hostilities in Ukraine approaching NATO territory.
  • AUD/EUR down from recent highs as overall market aversion to ‘risky’ currencies contributes to AUD softness.
  • Elevated commodity prices will continue to provide base AUD support though.
  • AUD/JPY has retraced slightly from highs, but upward trend still evident as JPY hurt by commodity price rises (Japan being an importer of grains, oils and metals)
Looking Ahead
  • Heightened volatility in currency markets to continue in the near term, but the inflation/growth story still to receive attention.
  • RBA minutes and Governor Lowe speech this week to provide some clarity on RBA rate hike thinking
  • USD strength to be underpinned by expected 25 basis point rise in rates this week.
  • UK also expected to follow up with 3rd consecutive rate hike.

FX Market report

Tue, 08 Mar 2022
Key themes
  • AUD/USD is 5% higher over the last 30 days.
  • Rising commodity prices have provided momentum, fuelled by concerns of energy shortages amid War in Ukraine
  • AUD/EUR has risen by 10% and AUDGBP 6%, over the same period
  • Volatility to continue in currency markets as investors balance the trade-off between holding ‘safe harbour’ and ‘risky’ assets.
Looking ahead
  • US inflation data on Thursday expected to provide Markets with guidance on likely timing of US rate hikes, broadly expected to start in March.
  • Impact of Russian trade sanctions on global growth may moderate measures by central banks to contain price pressures.

April 2022

FX market update

Tue, 26 Apr 2022
Key themes
  • AUD/USD under pressure all week and after trading at a high of 0.7458 last Thursday it has softened to trade below key level of 0.7200 (Trading on Lows @0.7130).
  • Equity markets taking a hit as Chinese lockdowns have weighed heavily on Commodity prices dragging the AUD with it.
  • Market have reacted negatively to the news that Covid is spreading more rapidly in China.
  • USD has strengthened against most major currencies.

 

Looking ahead 
  • Australian CPI due out Wednesday will be the focus for Australian markets. 
  • The concensus is for RBA Core Trimmed Mean Inflation to be 1.2% q/q and 3.4%y/y. This is well above the RBAs February Statement of Monetary Forecast of 0.8%q/q
  • Headline CPI Reuters forecast 1.7%q/q and 4.6%y/y
  • No other major australian data out this week

 

FX Market Update

Tue, 19 Apr 2022
Key themes
  • AUD/USD was relatively subdued remaining in a stable one cent range over the week 0.7390 - 0.7495, however since the Easter Break it has softened to be currently trading around 0.7350
  • Major currencies were also weaker against the USD
  • NZD - RBNZ increased Interest Rates by 50 basis points to 1.50% adding pressure on the NZD and moving AUDNZD up 1.095 form lows of 1.083
  • Chinese economy grew at a 4.8% annual rate in the March quarter (survey 4.4%) However due to major lockdowns, expectations are that this will fall slightly as supply chain issues are interrupted.
  • No major Economic numbers out this week in Australia
Previously
  • Australia's unemployment fell marginally below 4%
  • Unemployment rate 4.0% rounded (3.95%) the lowest rate since 1974

FX market report

Mon, 11 Apr 2022
Key themes
  • AUD/USD continuing to push higher, big move over the week 0.7440 - 0.7660, however it is still very volatile with geo-political issues a, RBA and AU Political volatility.
  • AUD drifted moderately lower to end the week, as the USD remained well supported. Offshore factors, as well as local unemployment data, are key drivers in the week ahead.
  • The focus will be very much on politics, with the Prime Minister announcing a 21 May date for the federal election on Sunday.
  • Strong Commodity prices has seen the AUD/USD rise over recent weeks.
  • RBA is now shifting towards a tightening bias, the market is anticipating the first rate increase to be as soon as the June meeting.
Previously

The RBA released the six monthly Financial Stability Review. The discussion was mainly focused around three identified risks.

  1. The possibility of difficulty faced by some borrowers as interest rates rise
  2. The risk that asset prices could fall sharply as interest rates rise
  3. The RBA still believes the financial system is stable and well capitalised. The great unknown is how hard households with a large offset/redraw balance will seek to protect that balance as mortgage rates rise. They also discussed the growing prevalence of Cyber attacks.

FX market report

Thu, 07 Apr 2022
Key themes
  • AUD/USD has retraced from recent highs as global sentiment turns weaker on commodity based currencies.
  • Minutes released from the Fed’s meeting this week indicated that the US will be taking a firm approach to rate hikes over the next year, in a bid to reel in inflationary pressures. The minutes also outlined the Fed’s readiness to reduce the size of it’s balance sheet, with holdings of $9trillion in bond holdings, built up to assist stimulus during the pandemic.
  • Higher US interest rates pose a threat to global growth and weaken support for commodity currencies, such as the AUD.
Looking ahead
  • Despite the moderation to sentiment noted above, Markets expect the AUD to maintain base support due to elevated commodity prices amid the war in Ukraine.
  • RBA Board meeting minutes this week have increased market expectations for domestic rate hikes to commence from June. The RBA highlighted that it will be taking guidance from upcoming data on inflation and wages growth. This will also bolster support for the AUD/USD.

May 2022

FX market update

Tue, 03 May 2022
Key themes
  • RBA has increased the official cash rate by 0.25% from 0.10% to 0.35% today. This was at the higher end of market expectations.
  • RBA commented that the decision was based on a resilient economy in combination with a pick-up in inflation to a level that was higher than expected.
  • AUD/USD appreciated throughout the day to a high of 0.7150 and is currently trading at 0.7120.  Low on the day was 0.7050. This is down from a near-term high of 0.7650 in early April vs a low of 0.7030 this week.
  • CPI spiked last week following the release of a 5.1% rise in Q1, the highest in 20 years. Core inflation jumped to 3.7%, well above the RBA target band of 2-3%.
Looking ahead 
  • While AUD may find support from the commencement of the local rate hike cycle, currency could still struggle to gain momentum against the USD, given a more aggressive USD Federal Reserve tightening cycle.
  • USD Federal Meeting is later this week.
  • Other G7 currencies are also weaker against the USD.

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