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A$ Regains Poise On Equity Bounce

AUD

AUD/USD ended last week on a better note. We pushed close to 0.6960 post the Asia close on Friday, before edging back down to 0.6945. We track close to this level in early trade today.

  • Better equity market sentiment was the main driver of the A$ rebound. US equities surged (+3%), while the VIX index dipped to the low 27% region.
  • Equity sentiment was aided by lower consumer inflation expectations in the US.
  • US yields were still higher though, the 2yr up nearly 5bps to 3.06%. Recall last week the AU-US yield differential fell sharply, ended last week at -32bp for the 2yr tenor.
  • We could see some stabilization today, although RBA Governor Lowe reiterated the central bank's stance late on Friday that 25 or 50bps hikes were likely.
  • He also spoke of the resilience of the economy and is not expecting a recession, but recognized the path to lower inflation is a narrow one.
  • Commodities edged slightly higher on Friday according to the Bloomberg commodity index (+0.33%). Base metals were still down though (-2.6%). Iron ore was firmer, back up to a $117/tonne handle.
  • The data calendar is quiet today.
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