With geopolitical tensions in Europe showing little sign of resolution, trader risk-appetite has cooled dramatically. As a high-yielding, risk-correlated currency, the ‘Aussie’ (AUD) has softened in response. The declination has been somewhat slowed, however, thanks to stimulus measures employed by the People’s Bank of China (PBOC).
Dampened market sentiment is also responsible for the US Dollar uptrend due to its safe-haven status. That being said, the ‘Greenback’s advance has been slightly sluggish thanks to disappointing domestic data. A string of unfavourable data publications is weighing on demand for the US Dollar as futures traders pare bets as to the timing of a Federal Reserve rate revision.
With market sentiment rocky and oil prices low, the ‘Aussie’ has had little to celebrate over the past few weeks. The declination has been welcomed by the Reserve Bank of Australia (RBA) however, given that the central bank has been openly complaining that the high-valued Australian Dollar is hindering economic growth as domestic businesses struggle to export.
The South Pacific asset also had to fight against a wave of disappointing data out of China last week. Given the intimacy of the trade relationship between Australia and China, the ‘Aussie’ is particularly sensitive to ecostats from the Far East.
The US Dollar has also endured a declination over the past few weeks. Having started the year on a bullish run; traders swiftly brought forward bets as to the timing of a rate hike. The Fed stated that benchmark rate alterations would be subject to domestic data results, with particular reference to the labour market. The US data results have been disappointing, on the whole, which caused futures traders to pare bets as to the timing of a cash rate increase.
However, the US Dollar has avoided considerable losses thanks to the ongoing difficulties between Greece and Eurozone officials. With little known as to the full extent of the consequences of a Greek exit from the Eurozone, traders have shown an increased reluctance to invest in risk-correlated currencies. So, as logic would dictate, the lack of demand for high-yielding assets has seen increased appetite for safe-haven assets.
Monday has seen the Australian Dollar to US Dollar exchange rate trending within a narrow range. This is as a result of the ‘Aussie’ gaining from stimulus employed by the PBOC and the US Dollar softening in response to disappointing domestic data. The pairing did hit a one-month high in the immediate aftermath of the PBOC measures, however.
The PBOC cut the Reserve Requirement Ratio for Major Banks from 19.50% to 18.50% in the hopes of combating a recent string of less-than-ideal data publications. ‘The magnitude of the easing is more aggressive than we had expected,’ the bank said.
‘A 100 basis point RRR cut only happened once during 2008 financial crisis,’ HSBC added. ‘However, this move is not a total surprise as China’s latest macro data surprised on the downside. The move clearly aims at neutralizing the negative impact of the CSRC’s (China Securities Regulatory Commission) new rules to restrict margin financing and encourage stock lending.’
The US Dollar, conversely, softened after domestic data failed to meet with expectations. The Chicago Federal Reserve National Activity Index was forecast to advance from -0.18 to 0.10 in March, but the actual result declined to -0.42. This further compounds expectations that the Federal Open Market Committee (FOMC) will delay a lending rate increase.
Tuesdays RBA minutes from their most recent policy meeting will be of interest to those invested in the ‘Aussie’. Should the minutes hint at further rate cuts, the Oceanic currency is likely to dive versus the majority of its most traded currency rivals.