Australian Dollar, AUD/USD, Fed, Bond Yields, BRICS – Talking Points
- Australian Dollar falls against US Dollar as markets shift to risk-off
- The 2022 BRICS Summit set to kick off today in virtual format
- AUD/USD looks set for further weakness above key trendline support
Thursday’s Asia-Pacific Outlook
Asia-Pacific markets may fall today after traders went risk-off overnight during the New York trading session. Recessionary fears were brought back into the fold after Federal Reserve Chair Jerome Powell clarified that rate hikes may cause a recession. Mr. Powell, speaking before Congress, said, “it’s certainly a possibility.” US stock indexes responded by trimming early gains and finishing the day with losses. The risk-sensitive Australian Dollar fell against the US Dollar. This morning, Australia’s global manufacturing PMI flash index rose to 55.8 for June, up from 55.7 in May, according to S&P Global. The services sector component fell to 52.6 from 53.2.
It was the Euro, and not the Dollar, that benefited from the risk-off flows in the currency market. The Greenback’s strength was stifled by strong bond-buying across the short-end of the Treasury curve, with yields broadly falling across maturities as well. The USD-sensitive 5-year Treasury rate fell to its lowest level since June 10. Bond investors’ appetite extended throughout bond markets in the APAC region, with government bond yields falling in Australia and New Zealand.
Energy markets were another victim of the increased confidence in an impending recession. WTI crude prices fell nearly 4% to the lowest levels traded at since early May. The Fed’s signaling over the possibility of a recession benefits their policy in this regard, as lower oil prices are likely to help cool inflationary pressures. President Joe Biden called on Congress to suspend the federal gasoline tax through September. The US President is under growing political pressure with gasoline prices at or near record highs across much of the US.
Elsewhere, the BRICS Summit is set to kick off in its virtual format. The leaders of Brazil, Russia, India, China, and South Africa will discuss economic and political cooperation, among other matters. It will also be the first time Russian President Vladimir Putin publicly joins other leaders since the invasion of Ukraine.There may also be some talk about further shifting away from the US Dollar system.
Notable Events for June 23:
- Japan – Foreign Bond Investment (18/June)
- Japan – Jibun Bank Manufacturing PMI Flash (June)
- Thailand – Balance of Trade (May)
- Philippines – Interest Rate Decision
- Indonesia – Interest Rate Decision
AUD/USD reversed its gains from earlier this week after prices fell close to trendline support before trimming some losses. That trendline may continue to underpin prices. The Relative Strength Index (RSI) and MACD oscillators remain weak, offering little sign of a turnaround in momentum in the short term. To the upside, the psychologically imposing 0.7000 level may provide resistance if prices turn higher.
AUD/USD Daily Chart
Chart created with TradingView
— Written by Thomas Westwater, Analyst for DailyFX.com
To contact Thomas, use the comments section below or @FxWestwater on Twitter