- The Australian Dollar has found firmer footing going into Tuesday
- The BoJ pondered policy adjustments and the US Dollar sank in the aftermath
- RBA and Fed policy could impact back-end yields. Will they boost AUD/USD?
At the start of the week, the Australian Dollar had a big increase that continued into Tuesday’s trading session. The overall weakening of the US Dollar has been largely blamed for the sudden increase.
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The weakness in the ‘big dollar’ began with the USD/JPY collapsing in the aftermath of comments from Bank of Japan Governor Kazuo Ueda.
He seemed to imply that if economic and pricing conditions improved, its negative interest rate policy (NIRP) may be revisited later in the year.
After his remarks, the benchmark 10-year bond traded at 0.70%, the highest level for Japanese Government bond yields since early 2014.
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Treasury yields underperformed on Monday relative to most other global government bonds but not so much against Australian Commonwealth Government Bonds (ACGB).
The spread between Australian and US bonds continues to favour the US Dollar when looking at the closely followed 2- and 10-year part of the curve.
The release of Australian retail sales data for August, set to be made public on Thursday, will be closely watched by traders. This information is crucial because it sheds light on consumer purchasing habits, which make up a significant component of the economy as a whole.
Crude oil prices are scoping new highs as volatility dips while the US Dollar adjourns its ascendency ahead of CPI and the Euro considers its fate with the ECB rate decision ahead. https://t.co/93DhRNfMwT pic.twitter.com/RXBk7Ad9UT
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Moreover, the unemployment rate, a key indicator of the health of the Australian economy, is projected to remain steady near multi-generational lows at 3.7%. This low unemployment rate is indicative of a robust labour market, which can contribute to stronger consumer confidence and spending, thereby potentially bolstering retail sales.
The RBA left rates on hold last week at 4.10% and the interest rate market is ascribing only a low probability of any further hikes in this cycle.
It appears that the third quarter CPI, due to be released on October 25th, is the crucial data point that might shift the needle on the RBA’s thinking around monetary policy.
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Since the epidemic lows at zero, the RBA has increased rates by 400 basis points (bps), while the Federal Reserve has increased rates by 525 bps.
It may be claimed that the short end of the curve’s more aggressive stance contributed to the Treasury’s back yields being higher than the ACGB curve’s.
While the RBA seems to have put the cue back in the rack, the market is pricing in one more hike by the Fed by the end of this year before easing in 2024.
Adjustments in the disparity of monetary policy between the RBA and the Fed might be a driver for the Aussie going forward. For more information on how to trade AUD/USD, click on the banner below.