AUDUSD retraced early Asian gains as central banks’ efforts

AUDUSD risk proximity rose in early Asian trade but retraced after reaching 0.6730. It is now trading flat. Risk appetite increased in the early Asian hours. As did certain high beta currencies. As a result of synchronized efforts by major central banks to address the liquidity crisis.

Despite the clear swap line, AUDUSD investors are wary since two additional European banks are under investigation.

Several commercial banks began to tumble one by one last week, with Credit Suisse being among the largest. At the weekend, Swiss officials pressed UBS to purchase the struggling Credit Suisse. At the same time, other major central banks such as the Federal Reserve (Fed). The Bank of England (BoE), the European Central Bank (ECB), and the Swiss National Bank (SNB) worked together to address the liquidity situation.

The Federal Reserve has launched its swap line. to provide US Dollars to some major central banks in order to alleviate any liquidity drain on the US Dollar. Which serves as the international reserve currency. The Bank of Japan (BoJ) remains insulated from this dollar bidding scheme. Claiming no indication of financial crisis.

Having said that, two European commercial banks are being investigated for liquidity contagion. Which might be a cause for investors to be wary despite the swap line.

The People’s Bank of China (PBoC) held its benchmark rate constant after cutting the Reserve Requirement Ratio (RRR) by 25 basis points on Friday. The PBoC’s persistent easing is expanding the yield disparity with others and is expected to maintain capital outflows.

Some previous remarks Assistant Governor Christopher Kent of the Reserve Bank of Australia (RBA) announced that the bank will review financial circumstances for the upcoming policy meeting but downplayed the current position by stating it is only a small number of badly managed institutions.

All eyes are on the Fed and its projected 25 basis point rate rise.

All eyes are on the FOMC meeting to see if they will still deliver a 25-basis point (bps) rate rise, and if so, what their forward guidance will be. Although the most likely outcome appears to be a done deal, be prepared for any surprises.