17th March 2022 - FOMC The hike begins, AUD/USD Surges near 0.7300



MARKET WRAP


Stocks were firmer, led by the Nasdaq again, as indices shook off the kneejerk hawkish reaction in wake of the 25bps Fed hike and aggressive 2022 hike path seen in the Dot Plots.

The seven hikes in 2022 median dot forecast was the hawkish highlight (economists surveyed expected the median to be four/five hikes for 2022), seeing stocks tumble at the time, while the Dollar caught a bid back to flat on the move higher in US yields, particularly at the front-end. However, as the dust settled, and Powell's presser/Q&A gave little new details (aside from that balance sheet normalization plans could be finalised in May) risk assets recovered towards highs going into the close, while long-end yields moved higher again and the DXY reversed back lower.


US FX WRAP: DXY rises above 99 in wake of FOMC statement, but as hawkish market pricing pares the Dollar selling resumed during Powell's presser.


DOLLAR: The risk-on session out of APAC/Europe and into the NY Wednesday morning weighed on the Dollar although losses were reversed in reaction to the FOMC statement which saw the Fed hike by 25bps as expected in an 8-1 vote split where Bullard voted for a 50bp move, while little details about the balance sheet were revealed although it is to be reduced in "a coming meeting".

The Fed now sees seven hikes in 2022 (including today's), up from the three seen in the December SEPs, which implies a 25bp hike at each remaining meeting, which is at the hawkish side of pre-meeting expectations.


Market pricing leaned hawkish with pricing for a 50bp move in May rising to as high as 65% before paring to a 44% chance as the dust settled. Fed Chair Powell avoided any hawkish surprises during the press conference, but he did suggest we could get a balance sheet announcement in May, although details still remain light but he did note progress was made on balance sheet reduction.


Fed Chair Powell also reiterated a commitment to a steady normalisation process, although he did note they are prepared to adjust at a faster pace if necessary, a familiar line from Powell.

As market pricing came back in, the Dollar selling returned and extended as the Euro and cyclical currencies were bought while the Yen was bought from its lows.


The Committee has introduced language specifically referring to the Ukraine situation, noting the uncertainties it presents to the economy, but could present upwards risks to the

inflation profile.



FX


AUD/USD

Following an initial sell-off in AUD/USD over the Federal Reserve interest rate decision and statement, the bulls are moving in as the greenback gives back a significant portion of its rally. The pair trades near the 0.7300 level after the US Federal Reserve delivered as expected, promised more action coming up, backed by solid Wall Street's gains. Australian employment figures coming up next.


USD/JPY rose to highs of 119.12 in wake of the statement on the wider policy divergence between the Fed and BoJ although as the initial moves reversed, the Yen moved sub 119.00 again, but remained weaker on the session against the Dollar, and Euro. Some weakness in the Yen may also have been derived from the 7.3 earthquake reported in Japan which prompted the following Tsunami warning.


The Euro saw lows of 1.0950 in wake of the FOMC statement but the market reversal saw the single currency reverse back above 1.10.

Gold saw initial downside to break beneath USD 1 ,900/oz, but in fitting with broader markets, also reversed throughout the press conference to take the yellow metal to positive territory at USD 1,920/oz.


Cyclical currencies saw a similar reaction, the initial bout of weakness post statement was pared during the press conference with relative outperformance seen in AUD, while GBP and NZD saw similar gains, and CAD was the relative underperformer as oil prices fell.


Note, Canada CPI was hotter than expected, rising 5.7% in February Y/Y from 5.1 % and above the 5.5% consensus, while the M/M rose 1.0%, above the expected and prior pace of 0.9%.

The average of the BOC measures also ticked up, rising to 3.47% from 3.2%, an unwelcome sign for the BOC as inflation edges further above their 3% target. Attention for GBP tums to the BOE tomorrow



Session Wrap : Fed hike 25bps as expected, accompanied by hawkish dot plots; Powell sticks to the script in presser, says it will be a steady normalisation process, but they can move faster if needed; Conflicting reports on Ukraine/Russia developments; China to support Chinese stock market, alongside progress on US listing developments; Japan

earthquake, but all tsunami alerts since been lifted; Retail sales miss in February, but revisions were strong.




GEOPOLITICS:


There were a range of varying reports on Wednesday, which gathered pace after the FT, citing sources, said Ukraine and Russia have made significant progress on

a tentative 15-point peace plan, including a ceasefire and Russian withdrawal if Kyiv announces neutrality and accepts military limits.

Moreover, the piece noted the proposed deal would include Ukraine renouncing ambitions to join NATO and agreeing to not host foreign military bases/weaponry, and it declared

such a deal was discussed between negotiators for the first time on Monday.


In response to the article, Ukraine's Presidential Office Adviser Podolyak said it only represents the Russian position, and Ukraine seeks a ceasefire and withdrawal of Russian

troops.

From the Russian point of view, a Kremlin spokesperson, when asked about the FT report, stated its too early to disclose any set of potential agreements on resolving the Ukraine

conflict, according to RIA.


On talks, a Ukrainian official stated negotiations have not yet progressed significantly, and the more positive tone from Russia was more about Moscow wanting sanctions

pressure eased, calling it a •smoke curtain", according to Bloomberg's Hordern.


Additionally, Russian Foreign Minister Lavrov exclaimed peace talks with Ukraine are not easy but there is some hope for a compromise, and the Kremlin added the idea of

creating a demilitarised Ukraine, like an Austria/Sweden model, could be seen as a compromise.


A Ukrainian adviser, however, said only the "Ukrainian" model with security guarantees is to work. On a possible Swedish/Austrian demilitarised model, Ukraine said any model

would need absolute and legally-binding guarantees.


Lastly, Russian President Putin mentioned they did not have any other option but to have a special military operation and repeated he does not want to occupy Ukraine.

concluded by reiterating that all of Russia's aims of its operations will be achieved and the special operation is going to plan.

He


To Watch For Data


- Australian Employment,

- EZ CPI (Final),

- IS IJC,

- Industrial Production,

- Japanese CPI Events

- BOE & CBRT Policy

- ECB's Lagarde,



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Disclaimer

This material is provided by Navigate Global Payments (Navigate) ACN 615 699 888, AFSL 502711.  The material contains general commentary only and does not constitute investment or any other advice.  Certain types of transactions, like futures, options and high yield securities can be risky, and not suitable for all investors.  This information has been prepared without considering your objectives, financial situation or needs.  Please seek your own independent legal or financial advice before proceeding with any investment decision.  The information is believed to be accurate at the time of compilation and is provided in good faith.  Navigate does not warrant the accuracy or completeness of any information contributed by a third party. The information is subject to change without notice and Navigate is under no obligation to update the information. The information contained in this material are opinions of the author at the time of writing and does not constitute an offer, recommendation to act, a solicitation of an offer, or an inducement to subscribe for, purchase or sell any financial instrument or to enter a legally binding contract.  This information, including any assumptions and conclusions is not intended to be a comprehensive statement of relevant practise or law that is often complex and can change.  Past performance is not a reliable indicator of future performance. Any forecasts given in this material are predictive in character.Navigate Global Payments Pty Ltd nor its related parties or officers accepts no liability whatsoever for any loss or damages suffered through any act or omission taken as a result of reading or interpreting any of the information contained or related to this site.