- The Australian dollar fell against the greenback on Tuesday. It also lost ground against most of the major crosses.
- Speculation that the US Federal Reserve may lift interest rates four times this year rather than three helped boost the US dollar and bond yields.
- The data calendar on Wednesday is headlined by the release of Eurozone inflation figures for January.
The Australian dollar fell heavily on Tuesday, weighed down by speculation that the US Federal Reserve may lift interest rates not three times this year but four.
Here’s the scoreboard as at 7.50am AEDT.
AUD/USD 0.7790 , -0.0064 , -0.81%
AUD/JPY 83.63 , -0.34 , -0.40%
AUD/CNH 4.9259 , -0.0169 , -0.34%
AUD/EUR 0.6369 , -0.0006 , -0.09%
AUD/GBP 0.5601 , -0.002 , -0.36%
AUD/NZD 1.0764 , 0.0014 , 0.13%
AUD/CAD 0.9941 , -0.0019 , -0.19%
The catalyst behind the sharp drop was US Federal Reserve Chair Jerome Powell’s maiden public appearance before the US House Financial Services Committee during the session.
In a Q&A session before policymakers, Powell said that data and information received in recent months had made him more confident that inflation is moving back towards the Fed’s 2% target.
“I think each of us is going to be taking the developments since the December meeting into account and writing down our new rate paths as we go into the March meeting,” Powell said, referring to new forecasts that will be offered by individual FOMC members in March.
“We’ve seen some data that will, in my case, add some confidence to my view that inflation is moving up to target. We’ve also seen strength around the globe and we’ve seen fiscal policy become more stimulative.”
The confident words had an immediate impact on financial markets, sending US bond yields and the US dollar sharply higher while US stocks fell.
“[The] US dollar rallied to near a two-week high and US 10-year Treasury yields rose to an intraday high of 2.92%, supported by hawkish comments from Powell,” said Elias Haddad, Senior Currency Strategist at the Commonwealth Bank.
Powell’s appearance also managed to override a mixed batch of US economic data released during the session.
US consumer confidence, as measured by the US Conference Board, rose to the highest level since November 2000, suggesting that renewed financial market volatility had little impact on broader household sentiment.
However, that was offset by weakness in durable goods orders and the US goods trade balance, something that would usually drag on the US dollar and bond yields given the implications for US economic growth.
Still, as seen in the AUD/USD hourly chart below, that was largely overlooked by investors who bought the US dollar aggressively, sending the greenback to a two-week high.
At .7790, the AUD/USD has found support at levels where buyers steeped in earlier this month.
Looking to the session ahead, there’s a smattering of economic releases scheduled in Asia, although none appears likely to have much influence on the Aussie dollar.
In Australia, markets will receive private sector credit figures from the RBA for January at 11.30am AEDT.
That will be followed by the release of official manufacturing and non-manufacturing PMI data from China for February. There is no forecast offered for the latter but the manufacturing PMI is expected to ease to 51.2 from 51.3.
While these reports used to create a large reaction in financial markets, their importance has diminished in recent years.
Japan will also release retail sales, housing starts and industrial output data during the session. However, like the China PMI reports, these two have largely been overlooked by markets in recent years given the increased focus on inflation.
Heading into European trade, the main highlight comes from the Eurozone with the release of inflation data for February.
Headline inflation is tipped to 1.2% over the year, down from 1.3% in January. The core inflation reading — of more importance when it comes to the outlook for monetary policy settings from the ECB — is also expected to ease to 1.1% from 1.2%.
Other than that event — the undisputed headline grabber for the session — markets will also receive German unemployment data along with final GDP figures from the US and France.
US Fed Chair Jerome Powell will also appear before the Senate Banking Committee, although, if prior form from his predecessors is anything to go by, his commentary will largely mirror that offered a day earlier.
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