Australian Dollar Rallies on Fed Repricing

AUD/USD ANALYSIS & TALKING POINTS

• Silicon Valley Bank saga follows through this week, leaving the USD wavering and the Fed in disarray.
• Economic data today: Australian Consumer Confidence.
• AUD/USD up 1.45%, where to next?

AUSTRALIAN DOLLAR FUNDAMENTAL BACKDROP

The Australian dollar garnered support this Monday morning after continued concern over the Silicon Valley Bank (SIVB) collapse despite US policy makers (Federal Reserve, US Treasury and the Federal Deposit Insurance Corporation) issuing statements in attempts to quell worries in and around the US banking system. The result was a dovish repricing of Fed interest rates with the 2023 terminal rate for thus cycle now marginally above the 5% mark (see table below) from over 5.6% just last week. Money markets have drastically reduced the potential for a 50bps towards a 25bps increment and possibly none at all – leaving the U.S. dollar on the backfoot!

Tomorrow’s US CPI report will make things interesting should inflation come in higher than expected, making the Fed’s task that much harder.

FEDERAL RESERVE INTEREST RATE PROBABILITIES

Source: Refinitiv

Looking at the RBA’s pricing below, consensus is for the central bank to keep interest rates on hold at 3.6% – still well above the neutral rate.

RESERVE BANK OF AUSTRALIA (RBA) INTEREST RATE PROBABILITIES

Source: Refinitiv

Looking ahead, Australia’s Westpac Consumer Confidence Index for March are scheduled and has been relatively pessimistic (over 100 indicates greater optimism) of recent. This is largely due to China’s re-opening uncertainty but with increased amounts of fiscal stimulus, commodity prices could receive support which is a net positive for the Aussie dollar.

ECONOMIC CALENDAR

Source: DailyFX economic calendar

TECHNICAL ANALYSIS

AUD/USD DAILY CHART

Chart prepared by Warren Venketas, IG

Daily AUD/USD price action reflects the push higher towards the 0.6700 psychological handle coming off the oversold Relative Strength Index (RSI) reading. Today’s trading should be somewhat cautious and reactive to US banking stocks and any additional comments by US authorities but it is too soon to call for a turnaround ahead of tomorrow’s US inflation.

Key resistance levels:

• 0.6800
• 200-day MA (blue)
• 0.6700

Key support levels:

IG CLIENT SENTIMENT DATA: MIXED

IGCS shows retail traders are currently LONG on AUD/USD, with 71% of traders currently holding long positions. At DailyFX we typically take a contrarian view to crowd sentiment but due to recent changes in long and short positioning we arrive at a short-term cautious bias.

Contact and followWarrenon Twitter:@WVenketas