Sep 28, 2022 08:10AM +05:00
VOT Research Desk
Discussion Points
The View from the Market:
The US Dollar is fundamentally supported, while the Sterling is undermined. If the RBA becomes less hawkish, will AUD/USD make new lows? The Australian Dollar is fighting a tide of higher rates elsewhere.
The US dollar continues to rise on the back of a Federal Reserve that is determined to control inflation, holding the Australian dollar hostage to global forces.
“There’s a lot of tightening in the pipeline,” said St. Louis Fed President James Bullard overnight, reiterating the bank’s resolve to combat price pressures.
Evans and Kashkari, two of the Fed board members, backed his hawkish remarks. In some areas of the curve, the rhetoric has increased Treasury yields to levels not seen in decades.
As a result, the value of the US dollar has increased significantly against the British pound, especially since the UK government announced some unexpected fiscal stimulus measures on Friday.
Their loosening of policy goes against the Bank of England’s tightening of monetary policy and the stance of other developed market governments working to pay down debt caused by the pandemic.
The Reserve Bank of Australia (RBA) has hinted at a slowdown in their rate hike program back in Australia. Governor Philip Lowe recently stated that at their meeting on Tuesday, the board will consider a 25 or 50 basis point lift.
This indicates a less serious issue with inflation, but it has also undermined the currency by offering a lower yield.
The market is also torn between a 25 or 50 basis point rate hike next week, with the futures market pricing in a 39 basis point change. This upcoming meeting at Martin Place is also somewhat blind to what is happening to price pressures within the economy. The next CPI gauge will not be known until the 26th of October.
The Australian dollar has gained against the British pound and the Kiwi this week, but it has lost ground against the yen, euro, loonie, and, of course, the “big dollar.”
