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USD

03 May 2023

Fed hikes, telegraphs imminent pause

The Federal Reserve’s rate-setting committee raised benchmark rates by a quarter percentage point this afternoon, and – somewhat surprisingly – explicitly put the conditions in place for inaction at upcoming decision dates. At the conclusion of its two-day meeting in Washington, the Federal Open Market Committee unanimously voted to raise the target range for the federal funds rate to 5.00-to-5.25 percent, with no dissents in favour of a smaller or larger move. The increase brings US rates back to levels last reached in August 2007. In the official statement setting out the decision, policymakers noted “Economic activity expanded at a...

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03 May 2023

Hopes for Fed pause kick dollar lower

Equity futures are climbing, Treasury yields are coming down, and the dollar is pushing lower as investors position ahead of what many expect will become the Federal Reserve’s last rate hike in this tightening cycle. Risk appetite remains diminished after yesterday’s session brought a decline in job openings, a softening in durable goods orders, and evidence of worsening stress in the regional US banking sector – but expectations for more accommodative policy settings later this year are helping support narrowly-held gains across a number of asset classes.  Rowing against the overall dollar-negative tide, the Australian dollar is gradually giving back some...

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02 May 2023

Banking sector worries reemerge

• Risks reemerge. Renewed US banking sector concerns have weighed on risk sentiment. Bond yields, equities & oil prices fell overnight.• AUD volatility. AUD spiked after the ‘surprise’ RBA rate hike, but offshore developments have seen the AUD give back a lot of its gains.• US Fed in focus. Tomorrow’s US Fed meeting is the next major event. Another hike is expected. We think the Fed could push back on expectations rate cuts could start in H2. This could give the USD a boost. The relative calm across markets hasn’t lasted. Risk sentiment soured overnight as concerns about the US...

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02 May 2023

RBA: Once more, with feeling

A ‘pause’ doesn’t last as long as it used to. In a surprise to most analysts and interest rate markets, the RBA raised the cash rate by another 25bps at today’s meeting, taking it up to 3.85%. The move means that a cumulative 375bps worth of rate hikes have been delivered so far this cycle. As our chart shows, this is by far the most aggressive tightening cycle the RBA has unleashed for several decades. According to the RBA, inflation has “passed its peak” but at 7% it is “still too high and it will be some time yet before...

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01 May 2023

Will the RBA surprise?

• US yields rise. US bond yields jumped up overnight, supporting the USD Index. The US ISM manufacturing survey was a bit better than expected.• RBA in focus. We expect the RBA to keep the cash rate steady at 3.6%, however based on the tight labour market, we believe odds of a move may be a little higher than what markets are pricing.• AUD risks. A RBA ‘surprise’ would see the AUD spike higher, however the slowing global economy and outlook for another US Fed rate hike later this week are ongoing headwinds. Outside of a jump up in US...

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