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On January 11, the weather in northern and western Japan near the Sea of Japan has been extremely cold recently, with heavy snowfall in large areas over the past few days. In particular, the snow depth in Suoyu, Aomori Prefecture reached 3.7 meters on the 10th. Due to the snowfall, some sections of Japans highways were closed, and some Shinkansen trains were suspended or delayed.British Chancellor of the Exchequer Reeves: The fiscal rules set in the October budget are "non-negotiable". Global financial markets have undoubtedly changed.On January 11, Mitsubishi Motors President Takao Kato was interviewed on January 10. Regarding whether to join the management merger consultation between Honda and Nissan, he said "this is one of the options." Speaking of the envisioned benefits, Kato Takao said "We can actively get help in the North American business (where Mitsubishi Motors has no production base)." Kato Takao also pointed out that in terms of in-vehicle software development, "there will also be scenarios where the technical strength of the two companies will be utilized, which will be very beneficial." Honda and Nissan announced the full launch of management merger consultations in December last year. Mitsubishi Motors previously stated that it will decide whether to join the consultations around the end of January.On January 11, CICC commented on the US non-farm data. The team believes that the highlight of this time is the recovery of the service industry. The service industry has added 231,000 jobs, which has become the main driving force. Judging from the market reaction, the unexpected non-farm data has pushed the US Treasury bond interest rate and the US dollar to a new high, which is also in line with its judgment since the fourth quarter of last year: it believes that the US dollar is still strong and that interest rate cuts should be "done in reverse". When the interest rate cut is realized, it will be the low point of the US Treasury bond interest rate, rather than continuing to look at the recession and the starting point of the downward interest rate.German Geoscience Research Center GFZ: A 5.5-magnitude earthquake occurred in Ethiopia.

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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