Hawkish RBA Language Supports AUD Bulls

AUD

The AUD continues to leap higher against most counterparts as hawkish changes to language from the RBA keeps the Aussie outperforming against the majors. Asian equities finished the session higher, with the Nikkei up 0.2%, while China and Hong Kong were on holiday. The ASX added +0.2% on Tuesday, ending the day positive despite falling following the RBA’s Monetary Policy announcement. The highlight of the RBA’s announcement appeared to be that they are starting to see evidence that the pickup in inflation could be sustainably in the target range of 2-3%. Another tidbit of importance was the statement failed to mention the word ‘patience’, encouraging markets to price interest rates at 2% by the end of the year, up from 1.78% on Monday. The market’s perception that the RBA could be hiking rates in the not-too-distant future has underpinned the Aussie Dollar and raised prospects of higher grounds, with the pace of policy tightening dependent on economic data. With little data domestically today, markets will look for any further commentary from the US as well as any change in the risk situation from Russia/Ukraine.

USD

It was a rollercoaster session for AUDUSD, finding new highs for 2022 before coming back to trade higher on the day at 0.7582. The pair reached a high of 0.7661 (11month highs) as it enjoyed the change in tone from the RBA, though Federal Reserve Governor Lael Brainard helped the pair snap back to reality. Brainard returned fire with very hawkish commentary that the Fed would tighten monetary policy “methodically” through rate hikes, and reducing the balance sheet as soon as the May meeting with policy settings to be back to neutral this year. She also added inflation was very high and getting it lower was the top task of the Fed and that the Fed would take stronger action if required. The aggressive commentary spooked Wall Street overnight with the NASDAQ falling -2.3%, while the S&P 500 was -1.2% lower. What also helped the USD fight back was a stronger than expected ISM Services PMI, which landed at 58.3, higher than prior prints of 56.5. The Greenback was in strong demand across the board after the fact, which saw the DXY gain +0.7%. Focus will now be on the FOMC Meeting Minutes early tomorrow morning which will garner more attention after Brainard’s comments.

EUR

The AUDEUR continues to dominate, climbing higher to approach the 0.7 figure which doesn’t seem unreasonable at the moment, currently trading at 0.6952. The focus remains on the Eastern Europe crisis. As announced, Moscow has moved troops away from Ukraine’s northern region. However, Kyiv reported the massive assassination of civilians and war crimes, which resulted in western nations announcing plans to add sanctions on the Kremlin. Ukrainian President Zelenskiy stated that the possibility of holding talks with Russia has become very challenging but there is no other option. The EU is planning to propose a mandatory phaseout on coal imports from Russia, the ban requires the backing of all 27 member states. Data-wise, the Eurozone economic docket featured March’s Markit Services PMIs for the Eurozone, which rose firmly to 55.6 against a preliminary reading of 54.8. The few pieces of macroeconomic data from Europe this week will continue to take a backseat with the ongoing conflict.

GBP

The AUDGBP also joining in on the fun as the pair trades at 0.5799, trading in the 0.58s at one stage, a high not seen since late 2018. Weighing in on the Pound is the cost-of-living crisis in the UK. Soaring global energy and food prices are a concern. On the heels of the Chancellor’s mini-budget in March the focus has switched to the cost-of-living crisis in the UK. This is questioning how many more rate hikes the BoE can announce this cycle, with markets repricing whether or not UK interest rates will sit at 2% by the end of the year. In the UK, March final services PMI was 62.6, higher than its preliminary reading of 61. No major data to grab attention from the UK.

NZD

The AUDNZD not missing out either, finishing off the sea of green for the AUD, now trading at 1.0917. The prospect of more Western sanctions on Russia over its alleged war crimes in Ukraine continued acting as a tailwind for commodity prices. This, in turn, was seen as a key factor that benefitted resources-linked currencies, including the Kiwi. Despite the boost in commodity prices helping the Kiwi, the hawkish sentiment from the RBA kept the Aussie on the front-foot. No major data scheduled to come out from New Zealand for the remainder of the week.