FX Update: RBA hike warms up for FOMC main act tomorrow.

FX Update: RBA hike warms up for FOMC main act tomorrow.

Forex 4 minutes to read
John J. Hardy

Chief Macro Strategist

Summary:  The RBA meeting overnight saw a larger hike than most expected and fairly hawkish guidance, but while AUD knee-jerked higher on the news, the move has not held well in AUDUSD, even if AUDNZD seemed duly impressed. Elsewhere, it is all about the FOMC meeting on Wednesday and how the US yields at all points on the curve react to the message that Powell and company deliver.


FX Trading focus: RBA impresses with tightening move ahead of FOMC main event

There were quite a range of expectations among those surveyed on the RBA’s likely decision ahead of last night’s meeting, with a minority looking for nothing, most expecting a 15-basis point move to get the rate to an even 0.25% and others looking for 40 basis points to take the rate to 0.50%. Instead, we got a 0.25% hike to take the rate to an awkward 0.35%. The bank also announced that it would not replace maturing assets on its balance sheet (very few of which are expiring this year). In its commentary on the economy, the statement noted the important “there is evidence that labour costs are increasing more quickly” in addition to inflation levels picking up more aggressively. The guidance was for more rate hikes to come and 2-year Australia rates are nearly a full 25 basis points higher than they were yesterday, a chunky move. AUD rallied sharply, taking AUDUSD about a figure higher overnight as AU-US 2-year yield spreads jolted higher and are now close to parity. And yet the move held poorly, showing how firm the USD remains. AUDNZD was another matter, as that pair rocketed will clear of 1.1000 and testing its highs from 2018 – next focus there could be the highest since 2013 of 1.1430.

Elsewhere, the US 10-year Treasury yield tested 3.00% for the first time since late 2018 but retreated slightly this morning, and USDJPY has gotten sticky around the 130.00 level. As I emphasized yesterday, the reaction to the FOMC meeting will be important for JPY crosses in particular if long US yields consolidate lower after their blistering run higher in recent weeks. That could happen even if the Fed surprises with a larger than expected rate (Dear Jay Powell and company: please just hike to 1.00% and stop the upper- and lower-bound nonsense that has outlived its usefulness….) Front loading the hawkishness could actual temper longer yields if the market finally decides that the Fed is bent on getting ahead of the curve.

Chart: EURUSD
Ahead of the FOMC meeting tomorrow night, it is worth zooming out to a weekly chart for the EURUSD and consider where the pair may be headed as it works through the last shreds of the almost 20-year low from early 2017 just below 1.0350. The momentum is vicious and it is hard to see what would turn it back outside of a dramatic end to the war in Ukraine and a collapse of natural gas prices in Europe. On the USD side of the equation, given that the Fed simply cannot allow itself to surprise on the dovish side until at least a couple of solidly lower CPI prints have been registered, together with some markedly weaker economic data, the market would have to stage an enormous “sell the fact” reaction to the FOMC meeting tomorrow to see the USD lower. This pair may be ready to test parity in short order at its current pace of descent. Only a full reversal of the last sell-off wave, a rise above about 1.0750-1.0800 would suggest.

Source: Saxo Group

In Hungary, the forint is deservedly weakening again (as I noted recently, most recent wage data was +31.7% year-on-year in March, with public sector employees up +93% on pay raises and bonuses ahead of the April 3 election) and the political tensions with the rest of Europe may be reaching a tipping point as Hungary has said it would veto any move to boycott Russian oil. The next Hungarian CPI data point will be out next Tuesday, and given the wage gains and Retail Sales reported in Hungary, I am either waiting for a further dramatic spike in the CPI or reports that inflation is being under-reported in the country (remember Argentina?).

Table: FX Board of G10 and CNH trend evolution and strength.
The impact of the FOMC on the US dollar, the real stand-out in this market, is the critical focus this week. Later in the week, interesting to watch CNH and JPY once China and Japan return from the long holiday this week and have a look at US yields and the USD post-FOMC.

Source: Bloomberg and Saxo Group

Table: FX Board Trend Scoreboard for individual pairs.
USDCAD is an interesting one to watch as it has risen into the well-established range highs ahead of 1.3000 ahead of the FOMC tomorrow. AUDJPY is trying to cross back higher, but the chart still looks bearish if it continues to trade below perhaps 93.50. And have a look at the CNH pairs – with CNH crossing into a downtrend against a rising number of other currencies – soon also CNHJPY.

Source: Bloomberg and Saxo Group

Upcoming Economic Calendar Highlights (all times GMT)

  • 1400 – US Mar. Factory Orders
  • 1400 – US Mar. JOLTS Job Openings
  • 1630 – Canada Bank of Canada’s Rogers to speak
  • 2100 – New Zealand RBNZ to publish Financial Stability Report
  • 2245 – New Zealand Q1 Employment and Wages Data
  • 2300 – RBNZ News Conference
  • 0130 – Australia Mar Retail Sales

Quarterly Outlook

01 /

  • Macro Outlook: The US rate cut cycle has begun

    Quarterly Outlook

    Macro Outlook: The US rate cut cycle has begun

    Peter Garnry

    Chief Investment Strategist

    The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

  • Equity Outlook: Will lower rates lift all boats in equities?

    Quarterly Outlook

    Equity Outlook: Will lower rates lift all boats in equities?

    Peter Garnry

    Chief Investment Strategist

    After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto...
  • FX Outlook: USD in limbo amid political and policy jitters

    Quarterly Outlook

    FX Outlook: USD in limbo amid political and policy jitters

    Charu Chanana

    Chief Investment Strategist

    As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

  • FX: Risk-on currencies to surge against havens

    Quarterly Outlook

    FX: Risk-on currencies to surge against havens

    Charu Chanana

    Chief Investment Strategist

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo...
  • Equities: Are we blowing bubbles again

    Quarterly Outlook

    Equities: Are we blowing bubbles again

    Peter Garnry

    Chief Investment Strategist

    Explore key trends and opportunities in European equities and electrification theme as market dynami...
  • Macro: Sandcastle economics

    Quarterly Outlook

    Macro: Sandcastle economics

    Peter Garnry

    Chief Investment Strategist

    Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p...
  • Bonds: What to do until inflation stabilises

    Quarterly Outlook

    Bonds: What to do until inflation stabilises

    Althea Spinozzi

    Head of Fixed Income Strategy

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ...
  • Commodities: Energy and grains in focus as metals pause

    Quarterly Outlook

    Commodities: Energy and grains in focus as metals pause

    Ole Hansen

    Head of Commodity Strategy

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...
Disclaimer

The Saxo Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-hk/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo or its affiliates.

Saxo Capital Markets HK Limited
19th Floor
Shanghai Commercial Bank Tower
12 Queen’s Road Central
Hong Kong

Contact Saxo

Select region

Hong Kong S.A.R
Hong Kong S.A.R

Saxo Capital Markets HK Limited (“Saxo”) is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo holds a Type 1 Regulated Activity (Dealing in Securities); Type 2 Regulated Activity (Dealing in Futures Contract); Type 3 Regulated Activity (Leveraged Foreign Exchange Trading); Type 4 Regulated Activity (Advising on Securities) and Type 9 Regulated Activity (Asset Management) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products may result in your losses exceeding your initial deposits. Saxo does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo does not take into account an individual’s needs, objectives or financial situation. Please click here to view the relevant risk disclosure statements.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-hk/about-us/awards.

The information or the products and services referred to on this site may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and services offered on this website are not directed at, or intended for distribution to or use by, any person or entity residing in the United States and Japan. Please click here to view our full disclaimer.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc. Android is a trademark of Google Inc.