Written by Steven Dooley and Shier Lee Lim
Powell pushback continues
The greenback was higher, US shares fell, and bond yields jumped as markets seemed to finally accept that a March rate cut from the Federal Reserve was unlikely.
Federal Reserve chair Jerome Powell made an appearance on US news program 60 Minutes to say that inflation remains too high and growth too strong for the US central bank to cut rates in March.
The CME Group’s FedWatch tool now sees only a 17% chance of a cut in March – down from 40% on Friday.
As the greenback gained, key markets fell, with the GBP/USD leading losses with a 0.8% drop.
In Asia, the USD/JPY climbed 0.2% while the USD/SGD gained 0.4%. The USD/CNH was flat.
RBA decision due as new era dawns
The AUD/USD fell 0.5% ahead of today’s rate decision. According to ASX (Australian Securities Exchange) pricing, there is 0% chance the Reserve Bank of Australia will move interest rates when it hands down its decision at 2.30pm AEDT today.
However, there is plenty to look out for as the RBA enters a new era.
Following the recent RBA review, the governor will launch a new procedure with a news conference at 3.30pm. The RBA will also provide an updated quarterly statement with revised predictions.
While we don’t think the governor will want to hint at possible rate reduction later this year, we do believe the board will probably abandon its somewhat tightening posture. Instead, we expect policy guidance to go in a more dovish direction.
In light of recent data, we also anticipate a small but internally consistent set of macro revisions, with GDP and CPI estimates being slightly revised lower and unemployment estimates slightly higher.
After breaking below support at 0.6520, the risks for the AUD/USD have turned more negative.
Euro retail sales in focus
We’re looking for a 1.1% month-over-month decline in retail sales in the euro region using 71% of the available data.
This is due to significant monthly declines from France (-1.0%), Germany (-1.6%), and Spain (-1.4%).
The EUR/USD is teetering on key support at 1.0720. A break below this level sets up the potential for further euro weakness.
Aussie, kiwi at lows as USD charges higher
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 5 – 10 February
All times AEDT
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
