The Australian dollar climbed 0.7% last week despite a risk-off mood, helped by easing Fed expectations and firmer RBA messaging. A heavy calendar of central bank meetings and Australian CPI now tests that strength.
AUD/USD starts the week above 0.7020 after holding up better than expected against the US dollar. Easing expectations for further Fed rate hikes and demand for US Treasuries helped cushion the pair.
The pair managed to push higher over the week, climbing +0.7%, even though the Australian dollar keeps a high risk beta to equities.
Risk-off backdrop pressures markets
Growing concerns about AI-related spending, Brent crude pushing up to US$113/bbl, and fiscal and political uncertainty in France sent French bond yields to multi-year highs. Investors turned more cautious as a result.
Semiconductor stocks stayed under pressure and dragged technology shares lower. The move into safe haven assets helped push the US 10-year Treasury yield back below 5% after it recently reached 5.3%.
RBA keeps up the inflation fight
RBA Assistant Governor Sarah Hunter said the RBA is "not quite done yet" on inflation, and Australian bond yields moved higher after her comments. Deputy Gov. Hauser noted last week that the inflation outlook appears materially worse than the RBA expected in August.
As a result, market pricing for a November RBA rate hike rose to around 15bp, up from 5bp a week ago.
A busy week ahead
Markets will hear from RBA Governor Bullock and other RBA officials ahead of Wednesday's Australian September CPI. Markets expect underlying inflation, measured by the trimmed mean, to increase by 0.3% in September.
Central bank meetings follow: RBNZ and FOMC on Wednesday, ECB on Thursday and BoJ on Friday. The RBNZ is almost fully priced to deliver a +25bp rate increase, while markets have largely ruled out a Fed move this week and see December as the more likely timing for the next hike.
Source: ActionForex
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