AUD/USD Market Watch

The Australian Dollar (AUD) started the week slightly stronger than the US Dollar (USD). This uptick comes after the AUD weakened towards the end of last week, closing at 0.6580. The decline in value pushed the New Zealand Dollar/Australian Dollar (NZD/AUD) pair above the 0.93 level, indicating a relative increase in the strength of the NZD.

The fluctuation in the AUD last week was primarily due to the Reserve Bank of Australia (RBA) and the Federal Reserve (The Fed) taking different stances on monetary policies. The RBA raised its interest rates for the tenth consecutive time in the last twelve months, bringing them to 3.5%.

This rate hike was higher than many market participants had predicted, with some expecting a cash rate as high as 4.35%. It is worth noting that the cash rate peak ultimately decides the direction of everything and is a crucial component of the monetary policy puzzle. The AUD/USD pair is currently moving at 0.6590, reflecting the strengthening of the AUD.

As we enter an uncertain week, several important economic indicators are to watch for on the Australian front. On Tuesday, the Westpac consumer sentiment report is expected to be released, followed by the National Australian Bank Business confidence reports. Both pieces of data serve as leading indicators of the Australian economy.

On Thursday, the country’s statistics bureau will release the unemployment rate. Analysts anticipate an uptick to 4.7%, with further increases of 4.8% expected in the following year. However, one economist from the Commonwealth Bank of Australia suggests that the unemployment rate should stick around 4.3%, above the RBA’s expectations of a 3.78% consolidation figure. Currently, the unemployment rate stands at 3.7%.

SVB Relief

Investors are breathing a sigh of relief following the government’s announcement of a backstop to mitigate the fears of SVB’s downfall. As a result, the S&P 500 futures are bouncing back, making a 0.25% rate hike more likely in two weeks, as opposed to the expected 0.50% rate hike.

However, with the market likely moving towards what analysts call a “bloodbath,” now is not the best time for euphoric investor sentiment. This cautionary stance is because the constant inflation rate is on a direct collision course with the bank’s downfall.

The fallout from SVB’s downfall is far from over. While the government’s announcement of a backstop has eased investor fears to some extent, the situation remains fluid and uncertain. Powell and Yellen understood the risks of letting market uncertainty run rampant during Monday’s opening. Their prompt action to provide support was necessary to prevent a further downward spiral in the financial markets.

However, it is common to say that the late developments signal a longer period of rate hikes. Moreover, these rate hikes could result in everything analysts expected if the Fed maintained its hawkish stance. As a result, investors should be prepared for heightened volatility as the Fed seeks to balance its dual mandate of achieving maximum employment and stable prices.

With the Fed’s backstop facility in the green zone, VC funding is now backed by the US Treasury. This move provides a lifeline for firms feeling the full impact of the week’s operations, with shares circling in choppy waters over the weekend. The technological war between the US and China is only beginning and will likely ripple through the financial markets for some time.