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Summary
- Friday saw the US dollar index riding higher on the back of surging yields and improved economic conditions in the US.
- The AUD/USD pair fell 0.4% on Friday while the June US Dollar index futures rose by 0.29% reaching 91.677.
- The RBA is expected to maintain the same level of optimism with cautious monetary easing expected to be its recourse for the coming months.
The US dollar rallied on Friday driven by higher yields, which had a subsequent impact on the Australian Dollar leading it to retreat by the end of the previous week. Friday’s gains came for the US Dollar amid improving market conditions and increased recovery back home.
The AUD/USD pair closed higher at 0.7788 on Friday over previous day. The Australian Dollar was able to soar higher and recover from its previous setback owing to the US dollar hike on Friday. However, the AUD/USD pair was trading at 0.7754 on Monday at 8:59AM GMT.
The Australian Dollar serves as a proxy for investors’ risk appetite; thus, it stands as a great benchmark to measure the strength of the stock market.
Friday saw June US Dollar index futures reaching 91.677, an increase of 0.262 or 0.29%. The previous week began with the dollar index touching its highest since 23rd November. This has been a remarkable recovery for the greenback as it started the new year on a weaker note. On 15th March, the US Dollar index futures last traded at 91.76 at 4:43 a.m. EDT.
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Rising Inflation Expectations
Experts have joined the dots to conclude that the fiscal stimulus provided by the Biden government in the United States has contributed greatly to these optimistic expectations and thus, to the UD Dollar index rise. Pent-up consumer demand has also paved the way for a dollar index hike.
The US producer prices saw their largest gains in nearly 2 years as seen on Friday. The quick paced vaccine-related developments have also been a contributing factor. President Biden has issued an order for every state to make all adults eligible for vaccination by May 1st.
The USD also dipped as speculators brought their net short positions to their lowest since mid-November.
The benchmark 10-year treasury yields stood at 1.628% today, while on Friday, they were higher at 1.642%. However, the yield increase is likely to end soon setting the stage for the USD to fall.
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The Prospects for AUD and USD
The RBA continues to advocate that increased monetary policy easing is required despite recovery being observed in various sectors. Concerns regarding liquidity crunch in equities and the strength of the US dollar continue to loom large ahead of AUD/USD growth.
Growing fears of the United States’ clash with China as well as Canberra’s hostility towards Beijing’s stance on Hong Kong politics could weigh heavily on the currency pair.
The RBA might reiterate the same level of optimism as before, while remaining cautious about policy implementation. Governor Lowe’s upcoming speech at Melbourne’s Business School is likely to have little or not effect on the currency pair.
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