Australian Dollar, AUD/USD, Japanese Yen, USD/JPY, BOJ, Sentiment – Talking Points
- Australian Dollar in focus to gauge risk as APAC trading kicks off for the week
- The Bank of Japan’s interest rate decision eyed, as well as Australian inflation
- Momentum oscillators point to the prevailing weakness continuing this week
Monday’s Asia-Pacific Outlook
The risk-sensitive Australian Dollar slid sharply versus the US Dollar last week as markets adjusted amid growingly hawkish shifts in Fed rate hike bets. Those shifts saw short-term Treasury yields surge as traders ditched government bonds. A ‘front-loading’ of tightening is being priced in through overnight index swaps, with 50 basis point hikes favored as the base case scenario for the next four FOMC meeting.
Outside of the Fed and bets on rate hikes, the market will be watching Australia inflation data for the first quarter due out Wednesday. Analysts see the consumer price index (CPI) rising to 4.6% on a year-over-year basis, according to a Bloomberg survey. That would be up from 3.6% y/y in Q4. A better-than-expected print may rekindle some bullish energy in the Australian Dollar, as RBA rate hike bets may firm up on strong price data. As of Friday, cash rate futures were showing little chance for a rate hike at the May RBA meeting.
The Japanese Yen will also come into sharp focus this week, with the Bank of Japan set to announce its April policy decision on Thursday, according to the DailyFX Economic Calendar. Rate traders aren’t expecting a change to the benchmark rate, but an update to the bank’s inflation targets is expected. USD/JPY rose for a seventh consecutive week amid active BOJ bond purchases to cap yields. One-week risk reversals for USD/JPY fell into negative territory last week, suggesting options traders may be favoring some short-tern Yen strength.
Elsewhere, New Zealand’s March trade balance will cross the wires, which may induce some volatility in the New Zealand Dollar. NZD/USD fell last week on the broad risk-off move that dragged most APAC currencies lower versus the USD. This is despite RBNZ rate hike bets firming up. The Kiwi Dollar’s weakness was likely also a result of softer metal prices, which have been hit by both the stronger US Dollar and a hit to demand as lockdowns in China continue.
AUD/USD Technical Outlook
The march low is firmly in focus after AUD/USD plummeted, slicing below its 50-, 100- and 200-day Simple Moving Averages (SMA) last week. If prices break below 0.7162 it may fuel bearish sentiment enough for prices to move toward the psychological 0.7000 level. The MACD and RSI oscillators both generated bearish signals recently, with a cross below their respective center lines.
AUD/USD Daily Chart
Chart created with TradingView
— Written by Thomas Westwater, Analyst for DailyFX.com
To contact Thomas, use the comments section below or @FxWestwater on Twitter
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