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  • richard evans

AUD lower after dovish hike by RBA, eyes now on Powell

Good morning

RBA raised rates overnight by 25bps to 3.6% as widely expected but gave a dovish tone in the statement led to AUD weakening. GBPAUD trades up to 1.7985, AUDNZD down to 1.0780 and AUDJPY slips back to 90.80. RBA did say they expect that more tightening will be needed but their comments that inflation has peaked, growth has slowed, and a tweak to the wording of their forward guidance leads the market to think RBA are nearly done.

While AUD is having a spell of weakness I do wonder whether we’ll see similar comments from other central banks in the coming weeks or months as inflation slows (hopefully) and the pace of rate rises slows. Mind you, Goldmans have said that US rates could go as high as 6% this year, above most peak forecasts.

As I type GBPUSD is 1.2025, down from a high of 1.2065 this morning, while EURUSD almost touched 1.0700 before slipping back to 1.0675. GBPEUR at 1.1265, EUR seeing a little support from some suggestion ECB rates may need to rise further than currently expected.

Not sure I like the tone of China’s new Foreign Minister, Qin Gang. He has said US try to suppress China and that their approach should change if they are to avoid conflict. Also mentioned Taiwan, saying it is a red line that should not be crossed and that China will defend national sovereignty. President Xi also talked of suppression by the West that affects Chinas development. US/China relations are not going to improve any time soon I fear.

Focus today on Powell and we’ll really be looking for any hawkish signals, particularly after those comments from Goldmans about a possible higher than expected peak in rates. A 25bps rise is expected at the next FOMC meeting on 22 March but Powell could use this as an opportunity to warn of a potential larger rate rise. Obviously anything along those lines will send USD higher.

So, currency markets all look pretty calm and sensible for the time being but Powell does have the potential to change that, plus the ongoing geo-political risks are there for all to see. Don’t let this period of consolidation lead us to a false sense of security. We have seen big moves in FX and we’ll see them again. If only we know which way it will go. We don’t, and let’s face it, nor does anyone else. So we keep looking for sensible offerings that mitigate risk for companies and individuals alike, or helping those who speculate to ensure their risk/reward is appropriate.

- 15.00 Feds Powell speaks

- 23.50 Japan current account

- 00.30 RBAs Lowe speaks

- 07.00 German retail sales

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