Australian Dollar Outlook: RBA Pulls up the Anchor

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Australian Dollar Forecast: Neutral

The Australian Dollar steadied last week, trading in a roughly one-cent range around the 67 handle. This comes despite the RBA signalling a pause in their hiking cycle according to the meeting minutes released last week.

It seems that the inflation fight is over and there is no longer a need to slow down the economy.

Previous RBA boards have generally avoided entering the forecasting game, but it appears that the current regime can see further down the track with expectations of price pressures rolling over. The quarterly CPI figure in late April will be keenly watched to see if the posture is validated.

In any case, the relatively dovish stance of the RBA has not undermined the Aussie Dollar as the US Dollar gyrations continue to dominate the currency landscape.

Across the Pacific, Federal Reserve Chair Jerome Powell went out of his way a few days ago to reiterate that they can only deal with what’s in front of them when it comes to managing monetary policy.

The Fed hiked rates by 25 basis points even though several US banks collapsed in the lead-up to their meeting. There might be more failures of financial institutions in the US but it is an uncertainty that was unable to overcome the inflation-fighting values of the bank.

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The interest rate environment has generally undermined the Aussie, with Treasury yields still above Australian Commonwealth Government bonds (ACGB) across the curve.

US yields collapsed in the wake of the banking crisis but have steadied since. ACGBs followed the lead and their yields sunk with the US notes.

The benchmark 10-year bonds have a yield differential of around 16 basis points in favour of the greenback while the 3-year part of the curve is close to 75 basis points toward the ‘big dollar’. The larger gap in the short end highlights the disparity between the RBA and the Fed.

Industrial commodities are generally holding high levels, but soft commodities such as wheat are continuing to languish.

AUD/USD, GOLD, IRON ORE, COPPER, DXY INDEX, WHEAT