AUD/USD Might Rise as Dovish Fed Calms Yields, US Greenback

Australian Greenback Elementary Forecast: Bullish

• Australian Greenback positive aspects as US Greenback and Treasury yields weaken
• Dovish Fed commentary poured chilly water on fee hike expectations
• Comparatively quiet week might hold this momentum going for time being

The sentiment-linked Australian Greenback aimed cautiously greater this previous week, however it stays decrease than the place it was on common towards its main counterparts in February – see chart beneath. On the entire, the Aussie has been in a reasonably consolidative state because the finish of 2020, materially slowing down its upside progress since final 12 months’s Covid-induced backside.

Now, elementary forces may proceed to help the Aussie within the close to time period, however it stays to be seen if it may have a fabric lasting affect. This previous week, the Aussie capitalized on a decline in Treasury yields regardless of higher-than-estimated US inflation and retail gross sales knowledge. In reality, headline CPI clocked in at 2.6% y/y in March, probably the most since August 2018.

However, ongoing dovish commentary from the Fed and insistence on greater inflation being a transitory impact meant that hawkish expectations have been materially cooling. Odds of 1 hike by the top of subsequent 12 months sit at round a 50-50 break up now, down from roughly 90% confidence originally of April. This opened the door for world equities regaining upside momentum because the US Greenback drifted decrease.

Therefore, the main target for the Aussie probably stays on exterior occasion danger. Final week’s Australian jobs report was pretty rosy, except for a decline in full-time positions. However, very like the Fed, the Reserve Financial institution of Australia (RBA) will probably preserve an accommodative stance. Key native occasion danger to look at for within the week forward embrace RBA minutes and native retail gross sales figures.

US first-quarter earnings season stays in play. Notable releases forward embrace these from Honeywell, Intel and Netflix. On the entire, earnings’ surprises have been pretty rosy to date, opening the door to extra beats forward. US Markit Manufacturing PMI can also be on faucet. However, a comparatively quiet week of financial occasion danger might open the door for bond yields to maintain cooling, leaving a positive surroundings for shares and the Aussie.

Australian Greenback Index Versus US Shares and Treasury Yields – Every day Chart

Chart Created Utilizing TradingView

— Written by Daniel Dubrovsky, Strategist for DailyFX.com

To contact Daniel, use the feedback part beneath or @ddubrovskyFX on Twitter