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AUD

14 Mar 2023

Past the worst?

• Risk sentiment improves. Equites and bond yields bounced back overnight, but the moves in FX have been more contained.• US inflation. Core inflation remains stubbornly high. Services prices remain the key driver. This points to further Fed rate hikes and a USD rebound.• AUD data flow. China data is released today. Tomorrow, the Australian labour force report is due. Positive data may give the AUD a short-term boost. After a few turbulent days the tone across markets was more positive overnight, though reports late in the session that a Russian fighter jet collided with a US drone did see...

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14 Mar 2023

Buckle up, volatility should continue

Markets have hit an air pocket, with bonds in particular experiencing some extreme moves over recent days in reaction to the unfolding US regional banking situation. In our mind, the rather forceful emergency support measures unveiled yesterday by the US FDIC, Fed, and Treasury should help contain broader financial contagion risks. That said, while this should be somewhat of a short-term circuit breaker, and suggests that the scale and speed of the adjustment in some markets like bonds and the USD may be overdone, it doesn’t necessarily mean all is right in the world and that further market ructions shouldn’t...

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13 Mar 2023

Radical Rate Repricing

• Bond yield plunge. Extreme moves in bonds with US yields falling sharply (2yr down another ~60bps) as the Fed rate outlook is radically repriced.• Weaker USD. The adjustment has weighed on the USD. AUD is higher, though it is little changed on the crosses, illustrating how USD-centric it has been.• US CPI. Markets may have moved too far when it comes to Fed expectations. US CPI released tonight, another strong result could generate more volatility. The turmoil stemming from the US regional banking issues has continued despite efforts from authorities to try and contain contagion and macroeconomic risks. In...

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12 Mar 2023

Contagion worries

• US bank woes. SVB developments are weighing on risk sentiment, with US yields falling sharply. The policymaker response is in focus.• Data flow. Another solid US labour report. US CPI and retail sales this week. If SVB is contained, fundamentals point to rate expectations snapping back.• AUD holding. AUD remains around ~$0.66. These are several US, global and Australia data points this week that should keep AUD volatility elevated. A bout of risk aversion is running through markets with the collapse of the US’ Silicon Valley Bank (SVB), and its broader potential fallout, weighing on investors’ minds. The undoing...

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09 Mar 2023

BoJ & US labour market in focus

• Shaky risk sentiment. Bond yields fall as some partial data points to a looming turn in the labour market. Equities also under pressure.• US labour report. Market reaction to the outcome should be binary. A strong (weak) result would boost (weigh) on the USD.• BoJ announcement. Will outgoing BoJ Governor Kuroda spring one last surprise? If he does, the JPY would strengthen. Our base case is for no change today. Although the economic news flow has been light, there were some notable market moves overnight, generated by lower tier US labour market data. In a break from the recent...

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