AUD/USD – Aussie jumps as SVB collapse sends US dollar sliding

The Australian dollar is considerably higher on Monday. In the European session, AUD/USD is trading at 0.6617, up 0.58%. Earlier in the day, AUD/USD rose 95 points before paring much of those gains.

Bank collapse clouds Fed policy

The week is starting off with a light data calendar, but the markets are abuzz after the Silicon Valley Bank (SVB) suddenly collapsed. The failure of SVB has raised contagion fears but so far the damage seems contained and hasn’t weighed too much on the large banks. The Federal Reserve and Treasury Department stepped in quickly and said SVB depositors would be protected, which calmed down jittery markets to some extent.

The SVB debacle was the largest failure of a US bank in 15 years and has dramatically shifted market pricing of interest rate expectations. Before the collapse, the markets had priced a 50-bp hike at 70% and a 25-bp increase at 30%. Currently, there is a 70% chance of a 25-bp increase and a 30% chance of the Fed taking a pause. This shift away from a 50-bp hike is weighing on the US dollar, which has lost ground against the major currencies as a result. Still, if it becomes clear that no further banks are in danger of failing, we could see the markets again price in a 50-bp increase. Besides the contagion issue, investors will be keeping a close eye on Tuesday’s inflation report.

The February US employment report on Friday was hot/cold. Job growth came in at 311,000, blowing past the estimate of 225,000. The rest of the report was not as impressive and lent support to the view that the labour market may be about to cool. Wage growth ticked lower to 0.2% m/m, down from 0.3% in January and a consensus of 0.3%. As well, the unemployment rate rose to 3.6%, above the prior reading of 3.4%, which was also the estimate.

Australia releases consumer and business confidence indicators on Tuesday, with both expected to show improvement. Westpac Consumer confidence is expected to post a gain of 0.1% after a miserable -6.9% reading, while National Australia Bank’s Business Conditions are projected to improve to 21, following a reading of 18 prior.

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AUD/USD Technical

• AUD/USD tested 0.6639 in resistance earlier in the day. Above, there is resistance at 0.6713
• There is support at 0.6508 and 0.6434

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