18 March 2022 - AUD/USD eyes 0.74, BOE hikes rates.

Updated: Mar 31


MARKET WRAP

Dollar was lower on Thursday, which came after the Greenback began selling off during Fed Chair Powell's press conference on Wednesday, where in fact not much new was said, but he did suggest a hike every meeting and a steady normalisation process, which could be interpreted as a walk back on a potential 50bps move.

Meanwhile, there was no additional firm guidance on the timing for balance sheet reduction other than excellent progress has been made and the schedule could be finalised as soon as the May meeting. Regarding data on Thursday, the better-than-forecast claims, housing starts, Philly Fed and manufacturing output reports failed to resuscitate the Dollar. Additionally, the initial move lower in yields on Thursday (from highs Wednesday) could also be weighing on the Buck, but since yields grinded off lows in the NY afternoon, led by the long-end, and the Dollar also came off lows to breach back above 98 heading into the close.

Moreover, do note, the Dollar selling picked up a lot of steam heading into the London fix, in addition to equities grinding higher through the US afternoon, which could be a risk play.

However, analysts note there is some 'head-scratching' surrounding the rationale behind the Greenback's flip-flop following what must be perceived to be a hawkish March FOMC.

Looking ahead, on Friday there is little scheduled with only tier two data, but there is Fed's Barkin, Evans, and Bowman scheduled to speak in addition to Biden-Xi meeting.

GBP was flat on BOE Thursday, and one of the GIO underperformers, which only tells half the story. Cable hit a high of

1.3211 in contrast to a low of 1.3089, which was shortly after the BOE rate decision, where they hiked by 25bps but had a dovish dissenter with an 8-1 split as Cunliffe voted to leave rates unchanged.

As such, the pair saw a sharp whipsaw from 1.3211, heading into the meeting and fell to 1.3092, 10 minutes later.

Nonetheless, only a small minority were betting on a bigger than 25bps consensus hike from the BOE, very few, if any,

were anticipating one MPC member voting for no change at all, so it's understandable why Sterling suffered such a hefty

fall.

AUD USD Thoughts

The AUD/USD remained firm overnight on its way to a high of .7392. Offering interest should emerge once we breach .74c while downside support can be found as close as .7340.

Antipodeans were the G10 outperformers, with AUD seeing greater gains than its NZD counterpart. The Aussie took impetus from strong jobs data Thursday, highlighted by employment rate falling further than expected, whilst participation rate and employment topped expectations.

Adding to this , commodities helped the Aussie soar as iron ore and oil both surged higher. As such, AUD/USD hit

highs of 0.7392, a level not seen since early March, and breaching several key levels on the way, such as 0.7350.


Geopolitical

Russia's Kremlin said their delegation is putting colossal energy into Ukraine peace talks

with the conditions absolutely clear. Kremlin continued saying an agreement with Ukraine with clear

parameters could very fast stop what is going on.

Whilst speaking on the recent FT reports which said Ukraine and Russia had made significant progress

on a tentative 15-point peace plan, the Kremlin said it is not right, elements are correct, but the entire

peace is not true, a refute which Ukraine officials have also made.

Moreover, the Ukrainian Foreign Minister added they are ready to continue diplomatic efforts to stop

Russian aggression, while Ukraine and Turkey are to focus on setting up a Ukraine/Russian President's

meeting.

Regarding Western rhetoric, an unnamed Western official stated there is a very big gap between

positions in Ukraine-Russia peace talks, and those who have seen Russian President Putin's remarks

would be forgiven for thinking he is not in a mood to compromise.

Adding to the prior doubts cast by the Kremlin and Ukraine, although the western official comments

put a much larger emphasis on the distance between the two sides. Elsewhere, the Russian ally in

Belarusian President noted "We will respond if Ukraine continues to escalate and violate the borders of

our state', via Al Jazeera.

Meanwhile, US Secretary of State Blinken warned that China will be held responsible for actions

supporting Russia, seeing a brief spell of risk aversion in markets at the time. Whilst Blinken did not

add much new, the undertone was very apparent and comes ahead of US President Biden speaking with

Chinese President Xi on Friday night, Beijing time.

Lastly, on the ground, Western officials say the situation is not changing dramatically and Ukraine

could fight Russia to a standstill. Although note Foreign Policy reports, citing a US official, saying that

Russia is bringing more artillery equipment to the front-lines of Kyiv, potentially indicative of an

approaching siege/advancement of Russian forces into the capital.

Upcoming Data

US Existing Home Sales Events:

BoJ & CBR Policy Announcements;

Quad Witching Speakers:

Fed's Barkin, Bowman & Evans.

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.

Jordan Praturlon

Senior Corporate Account Manager


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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.