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The yield on the two-year U.S. Treasury note fell to a six-month low of 3.6550% and was last at 3.6611%.On April 4, local time on April 3, U.S. Secretary of Health and Human Services Robert Kennedy Jr. said that about 20% of the layoffs in the Department of Government Efficiency were wrong and needed to be corrected. The U.S. Department of Health and Human Services laid off about 10,000 people on the 1st. Kennedy said that people who should not have been laid off were laid off, and the department is restoring their positions. Kennedy said that canceling the entire lead poisoning prevention and monitoring department of the Centers for Disease Control and Prevention was one of the mistakes. At present, it is unclear what other projects Kennedy may plan to restore.Bank of Japan Governor Kazuo Ueda: Will consider the impact of food costs on consumers.On April 4, local time on the 3rd, the automobile company Stellantis said that due to the impact of the US import automobile tariff policy, the company decided to lay off 900 employees in its five US factories and suspend production operations at two assembly plants in Canada and Mexico. Antonio Filosa, Chief Operating Officer of Stellantis Americas, said that the US factories that were laid off were powertrain and stamping parts factories, which produced spare parts for two assembly plants in Canada and Mexico. According to the plan, the assembly plant in Canada will stop production for two weeks, and the assembly plant in Toluca, Mexico will suspend production throughout April. Filosa said the company is "continuing to evaluate the medium- and long-term impact of tariffs on operations."Bank of Japan Governor Kazuo Ueda: Non-weather factors may push up food prices.

Outlook for the Australian Dollar: RBA Action Does Little to Boost AUD

Alina Haynes

May 09, 2022 10:27

Following rate decisions from the RBA and the Federal Reserve, the Australian Dollar oscillated erratically over the course of the week. Wednesday and Thursday saw daily AUD/USD movements of more than 2 percent in opposing directions.

 

The clear message for the Australian Dollar is that it remains susceptible to fluctuations in the US Dollar.

 

The core underpinnings of the Australian economy remain robust. Public and private debt levels are quite manageable. This week's announcement of the trade balance (+9.3 billion AUD) underlined the strength of exports. The unemployment rate is at an all-time low of 4 percent, and economic growth is robust.

 

As the US Dollar adjusts to a Federal Reserve that is finally tightening monetary policy at breakneck pace to rein in skyrocketing inflation, none of this matters for the AUD/USD.

 

While the Reserve Bank of Australia (RBA) raised rates by 25 basis points (bp) on Tuesday, as anticipated in this column over a month ago, the Federal Reserve raised the stakes by 50 bp on Wednesday.

 

Fed Chair Jerome Powell effectively ruled out futures price increases of 75 basis points, causing the USD to weaken as the market had anticipated such increases.

 

The Dollar reversed course the following day after former Vice Chair Richard Clarida appeared to return to the super hawk position by stating, "Getting to neutral quickly will not be sufficient." AUD/USD was swept up in the turmoil.

 

The USD/CNY was permitted to fall to its lowest level since November 2020 prior to the weekend, which could have implications for the broader currency markets. If the currency of the second-largest economy in the world continues to erode against the US dollar, the dollar's strength may become even more widespread.

 

Consequently, the AUD/USD pair is in a vulnerable position as it trades near 18-month lows. The upcoming week will be dominated by Fed speakers. Any increase in hawkish rhetoric could lead to another jump in US Dollar strength, exposing AUD to losses.

 

The graph below illustrates the sensitivity of the Australian dollar to changes in the US dollar.

Index AUD/USD against US Dollar (DXY)

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