Australian dollar steadies as markets calm down

The Australian dollar is unchanged on Tuesday after climbing 1.29% a day earlier. In the North American session, AUD/USD is trading at 0.6673.

US inflation eases

With the Fed slowly but surely gaining the upper hand on stubborn inflation, US CPI reports have become key market movers. However, the Silicon Valley Bank collapse over the weekend overshadowed today’s February inflation report. Still, the numbers were encouraging – headline inflation slowed to 6.0% y/y as expected, down from 6.4% y/y in January. On a monthly basis, the headline figure eased to 0.4%, down from 0.5% prior.

What a difference a week can make. Last Tuesday, Fed Chair Powell reiterated the Fed’s hawkish stance on rates and the markets raised their rate expectations for a 50-basis point hike. Then the SVB failure triggered massive market turmoil and another large shift in market pricing. The probability of a 25-bp increase has risen to 85%, with the likelihood of a pause pegged at 15%, according to the CME Group. The odds of a 50-bp hike, which was a strong possibility just a week ago, have evaporated completely.

There is an uneasy calm in the air after the SVB collapse. The US dollar has steadied after retreating against the major currencies on Monday, and 2-year US Treasury yields have risen slightly today after a nasty 100-point slide over just three days, the worst 3-day plunge since October 1987. Still, investors are on edge about the risk of contagion to major US banks. system. Moody’s has cut its outlook on the US banking system to negative from stable, a sign that this crisis is far from over.

In Australia, NAB Business Confidence fell by 4 points in February, after a gain of 6 in January. This fell short of the forecast of zero. Business conditions ticked lower to 17, down from 18 prior and shy of the forecast of 21 points. Westpac Consumer Confidence improved to zero in March, after a dismal 6.9% decline in February. The RBA has hiked interest rates 10 straight times, and weary businesses and consumers are hoping that the current rate-tightening cycle is near its end.

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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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