A reality check for AUD
Summary: Tuesday's session saw a post-election reality check for the Australian dollar, with AUD moving lower after its post-election bounce on a new Reserve Bank of Australia report suggesting the likelihood of an interest rate cut at its June 4 meeting.
Monday saw a massive, 147 basis point spike in Australian equities to 6,476 (a new, multi-year new high) as well a 58 bps AUDUSD rally to 0.6908. Today, however, has brought some much-needed reality back to the Aussie, with the latest Reserve Bank of Australia minutes suggesting that the RBA is likely to cut rates at its upcoming June 4 meeting
The implied probability of a cut moved from around 70% to 89% over the past 24 hours.
This is something that was flagged numerous times in our own Macro Monday analyses, as well as by Saxo Australian Market Analyst Eleanor Creagh. The new trading range for the Aussie, which has held its ground over $0.70 for some time – is now likely to have a $0.69-$0.70 ceiling, with AUDUSD now standing at 68.84.
The key risks for a higher Aussie appear somewhat distant at the moment; we would need a pickup in Australian inflation, growth and an improvement in China-US trade talks. Australian equities, on the other hand, seem to be on a different planet. We broke to multi-year ASX 200 highs around the 6,400 level with very little resistance on the monthly chart to the all-time high of 6,851.50 seen in Novembe 2007. It's really quite stunning when you consider that this is a 28 year-plus bull cycle, with markets currently enduring falling inflation, large amounts of consumer debt and a property market that is a slow-motion train wreck.
One likely takeaway here – not just from an Australian business cycle perspective, but a global one – is a lower AUDUSD, as well as lower Aussie bond yields. This looks likely to be a key structural position for quite a few quarters,if not years, to come
Latest Market Insights
Quarterly Outlook Q3 2022: The Runaway Train
- Central banks' attempts to kill inflation is a paradigm shift, which could end in a deep recession.
Tangible assets and profitable growth are the winnersWith US equities officially in a bear market, the big question is where and when is the bottom in the current drawdown?
Understanding the lack of investment appetite among oil majorsThe everything rally seen in recent quarters has become more uneven, as its strength is driven by commodities in short supply.
The pressure is on as the wind leaves the sailsWith cryptocurrencies in sharp decline, are we entering a crypto winter or is the bear market a healthy clean-up of the crypto space?
Why the Fed can never catch up and what turns the US dollar lower?Many other central banks are set to eventually outpace the Fed in hiking rates, taking their real interest rates to levels higher than the Fed will achieve.
Bank of Japan: Swimming against the tideThe Japanese economy has gone from the age of deflation to rapidly rising prices in no time, leaving the Bank of Japan in a pickle.
Green transformation detour and bear market hibernationWith the impending risk of global econonomic derailment, we share the five things investors need to consider in this new half year.
Crisis redux for the eurozone?Whether there's going to be a recession in Europe or not, the path towards a stable economy will be agonizing.
Technical Outlook: Gold, Oil and a remarkable multi-decade perspective on EquitiesThe Nasdaq bubble pattern, USDJPY resistance, crude oil uptrend losing steam and the technical outlook for USD.
China: the train of new development paradigm left the station two years agoChina is transiting to a new development paradigm, as they are hit by deteriorating terms of trade, a slower global economy and an uncertain future while continuing attempts to contain the pandemic.