AUD rallies on hawkish RBA, NZD follows suit

The Australian dollar (AUD) is rallying by more than 1% in the European morning trading, owing to hawkish remarks from the Reserve Bank of Australia (RBA), which last night kept the policy rate unchanged at 0.1% but effectively paved the way for interest rate hikes in the coming months.

Since the beginning of the year, the AUD has been the best performing G-10 currency, presently trading at the highest levels since June 2021, boosted by increases in global commodity prices, with Australia being one of the world’s top exporters of raw materials.

This morning, the New Zealand dollar (NZD) followed in the footsteps of its brother (the AUD), reaching its highest level versus the US dollar since November 2021, aided by a recovery in risk sentiment over the past weeks.

Thus, recent forex market movements have shifted in favour of commodities-linked currencies, and we also see the oil-linked Canadian dollar (CAD) and Norwegian krone (NOK) regaining traction with rising crude oil (Brent) prices.

Chart of the day: AUD & NZD outperformed the USD in 2022

AUD & NZD strengthened vs the USD in 2022 – Credit: Capital.com / Source: Tradingview

On the geopolitical front, the US and EU countries are set to announce further sanctions against Russia this week. The US Treasury said that it will suspend Russia’s ability to make debt payments in dollars through US banks, putting the country under pressure to default on its obligations to foreign investors.

In Europe, Although the eurozone’s March Purchasing Manager Index (PMI) data generally met expectations, the euro remains vulnerable to the concerns surrounding the Ukraine conflict and the rapid rise in global energy costs, with the EUR/USD pair dipping below 1.10 versus the dollar.

The Sentix index, which gauges mood among eurozone investors and investment experts, fell to -18.0 in April from -7.0 in March, compared to the expectation of -9.4. Bund yields are dropping, signalling a deterioration in the economic outlook.

The focus of the market today will be on the US ISM services index for March, which is predicted to grow by 2.1 points to 58.6, indicating ongoing solid activity. Leal Brainard and John C Williams, two Federal Reserve policymakers, are scheduled to speak today, which might result in hawkish headlines for the USD.

EUR/USD slips below 1.10

Forex markets today – 5 April 2022

• In London’s morning trade, the US Dollar Index (DXY) traded at 98.80, slightly down by 0.2% on the day. The euro (EUR) breaks below $1.10, mostly unchanged today, after weakening by 0.6% yesterday. The British pound (GBP) gained 0.2% to $1.314.  
• Low-yielding safe-haven currencies, such as the Japanese yen (JPY) and the Swiss franc (CHF), were flat. 
• Oil-linked currencies, such as the Canadian dollar (CAD) and the Norwegian krone (NOK), were 0.2% higher versus the USD. 
• The commodity-sensitive Australian dollar (AUD) was the best performer of the day, up by 1.2%. The high-beta New Zealand dollar (NZD) is the second-best performer in the G-10 currency space, gaining 0.7% on the day. 
• Central Eastern European (CEE) currencies weakened following the geopolitical headlines of the past days. The Hungarian forint (HUF) was among the worst performer yesterday and continued to slip today, following Victor Orban’s victory in the Hungary elections over the weekend. The Polish zloty (PLN) fell 0.2% today, while the Czech koruna (CZK) was unchanged vis-à-vis the euro. 
• Emerging market (EM) currencies were mixed. The South African rand (ZAR) outperformed, owing to higher commodity prices, gaining 0.4% vs the USD, matching yesterday’s performance. On the other side of the coin, the Turkish lira (TRY), a major commodity importer, fell 0.3%.  In Asia, the Korean won (KRW) and the Chinese yuan (CNH) were flat. The Russian rouble (RUB) fell 1% after rumours that US Treasury may suspend Russian bond payments through US-based institutions. The Mexican peso (MXN) held steady. 

Major currencies: Top risers and fallers today – 5 April 2022

Major currencies: Today’s top risers and fallers, 5 April 2022, 10:45 UTC – Credit: Capital.com

Forex market heatmap – 5 April 2022

Forex market heatmap as of 5 April 2022, 10:45 UTC – Credit: Capital.com

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