The Australian dollar climbs as recession fears ease

  • The Australian dollar rallied against all major crosses except the New Zealand dollar on Monday.
  • Financial market volatility fell, encouraging renewed buying or short-covering in some assets that were pummeled on Friday.
  • The improvement in investor mood came despite another steep fall in US bond yields.
  • The economic calendar is quiet on Tuesday, except for a raft of speeches from several US Fed officials.

The Australian dollar reversed earlier losses on Monday, finding support from reduced financial market volatility, modest gains in some commodity markets and another large drop in US bond yields.

Here’s the scoreboard at 8am in Sydney on Tuesday.

AUD/USD 0.7112 , 0.003 , 0.42%
AUD/JPY 78.2 , 0.39 , 0.50%
AUD/CNH 4.7768 , 0.0188 , 0.40%
AUD/EUR 0.6283 , 0.003 , 0.48%
AUD/GBP 0.5387 , 0.0028 , 0.52%
AUD/NZD 1.0291 , -0.0024 , -0.23%
AUD/CAD 0.9531 , 0.0026 , 0.27%

After opening the session at .7082, the AUD/USD slipped to as low as .7066 in early Asia trade, weighed down by steep falls in Asian stocks following similar moves in US and European markets on Friday.

However, while the losses in stocks were maintained throughout the session, the Chinese yuan, after weakening in initial trade, strengthened steadily throughout the day, helping the AUD/USD to crawl off its earlier lows.

That move was extended in European and North American trade, helped by a modest reduction in market volatility, modest gains in some commodity markets and another steep fall in US bond yields, something that acted to weaken the US dollar on this occasion.

The yield on benchmark 10-year US Treasury notes fell below 2.38% at one point during the session, seeing the spread between three-month Treasury bills fall even deeper into negative territory.

“The catalyst for the weaker dollar was the decline with Treasury yields,” said Edward Moya, Senior Market Analyst at OANDA. The 10-year yield fell below 2.40% for the first time since December 2017.

The yield-led weakness in the greenback helped to push the AUD/USD to as high as .7116, a level it continues to trade just before the close.

AUD/USD Hourly Chart

Reflective of the improved investor mood, at least compared to what was seen on Friday and earlier in Monday’s session, the Aussie also gained strongly against all major crosses except the New Zealand dollar.

The gains in the latter were driven by much the same factors that helped to boost the Aussie dollar.

The British pound was weighed down by an acknowledgement from UK Prime Minister Theresa May that there was still not enough support from parliamentarians to pass her Brexit Withdrawal agreement.

The euro was also under the pump despite data showing German business sentiment improved unexpectedly in March, helping to alleviate growing pessimism surrounding a potential Eurozone recession.

Turning to the day ahead, it looks set to be another session where headlines and sentiment dictate direction given a lack of first-tier economic data releases.

New Zealand trade data for February and the BoJ’s core inflation measure in Japan are the headline acts in Asia.

Given the quiet calendar, movements in Chinese financial markets look set to be influential on the Aussie dollar once again today.

Later in the session, German consumer sentiment, French business confidence, along with consumer confidence, house price data, Richmond Fed manufacturing index, building permits and housing starts in the US, will likely receive some market attention.

While the economic calendar is relatively quiet, the central banks’ speaker scheduled is jam-packed with Luci Ellis of the RBA kicking off proceedings at 8.15am AEDT.

Her speech will be followed by appearances from Rosengren, Harker, Evans and Daly from the US Fed later in the session.