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US Dollar, Fed, RBA, Commodities. Is AUD/USD Trapped?


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AUSTRALIAN DOLLAR FORECAST: NEUTRAL

  • The Australian Greenback is underneath stress from US Greenback power
  • The Fed’s financial coverage tightening is outrunning the RBA for now
  • Iron ore and vitality commodities are on the rise. Will AUD/USD profit?

The Australian Greenback has kicked off 2022 on the defensive with the US Greenback roaring larger on the again of a extra hawkish than anticipated Fed.

The market returned from the vacation season and instantly noticed Treasury charges transfer larger. A few of these preliminary strikes have been considered as positions being re-stablished.

Going into the break, there was some concern that the unfold of Omicron may pressure the Fed to re-assess their tightening stance from the December FOMC assembly

Shorts in Treasury futures, amongst different positions, had been scaled again. Come 2022, it seems that many of those positions have been re-entered. AUD/USD is near the extent that it was previous to the vacations.

After the positions have been put again on, the market digested the minutes from the December FOMC assembly. The doc confirmed the tightening timeline had been introducedahead.

Because of this, Treasury yields have continued to rise and the rate of interest differentials between Australia and the US contract. This situation seems more likely to proceed till the RBA meets once more in early February.

When the central financial institution meets, it is going to have inflation knowledge for the 4th quarter. Throughout that quarter, a lot of the Australian inhabitants got here out of lockdown and value pressures would appear doubtless.

The most recent knowledge has annual headline CPI at 3.0%, equalling the highest finish of their 2-3% goal vary.

Nonetheless, their most popular measure of trimmed imply is 2.1%. Any important transfer on this gauge may even see a change in language or an acceleration within the discount of their asset buy program.

With rising US yields, the US Greenback discovered help, largely towards excessive beta, development linked currencies like AUD, CAD, NOK and NZD.

Nonetheless, whereas this was taking place, Australian export commodities proceed to rise towards USD or in some circumstances, transfer sideways. Most notably, will increase in iron ore and vitality commodity costs have been seen.

In late October final 12 months, commodity costs and rate of interest differentials each turned on the identical time to undermine AUD. The forex consequently depreciated to the early December low, simply above the November 2020 low of 0.69913

For now, it seems to be like rate of interest markets are working towards the Aussie, whereas commodity exports are supporting it.

AUD/USD, IRON ORE (SGX), AU-US 10 YEAR SPREAD AND WTI CRUDE OIL

Australian Dollar Outlook: US Dollar, Fed, RBA, Commodities. Is AUD/USD Trapped?

Chart created in TradingView

— Written by Daniel McCarthy, Strategist for DailyFX.com

To contact Daniel, use the feedback part under or @DanMcCathyFX on Twitter



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