FX Update: USD slide arrested as yields rebound. JPY weak.

The RBA paused its rate hike cycle yesterday as expected, a decision that capped an upstart sharp AUD rally into the meeting. Market expectations for an RBA pause had been quite firm, but AUD shorts might have been spooked by data yesterday showing that house prices rose sharply in Sydney by 1.4% in March and nationwide prices showing their first advance after ten months of declines. In any case, AUD rallied hard yesterday ahead of the meeting, which only produced the expected pause and a partial deflation of the rally. The new monetary policy statement retains a bias for further tightening, and positioned today’s hold on further increase as something the “provides the Board with more time to assess the state of the economy and the outlook, in an environment of considerable uncertainty.” As of this writing, AUDUSD is still hanging on to the break above the 200-day moving average around 0.6750, but the AUDNZD rally from yesterday has more completely reversed course, although note a tilt in our assessment of the more likely RBNZ surprise side below.

RBNZ – more room for a dovish surprise?  The RBNZ is expected to hike 25 basis points to bring the rate to 5.00%, taking its rate to the highest among G10 currencies, just ahead of the US. The market has priced another 25 basis points of further tightening beyond tomorrow’s decision before the RBNZ peak, but at the big round 5.00% level we could have the risk that the RBNZ feels it has done enough for now and would like to indicate that it may like the option to pause soon if it doesn’t pre-commit (somewhat like the RBA today and Bank of Canada recently) after this decision after decelerating from a 75 basis point hike in November to a 50 basis point hike in February and then the 25 basis points tonight. Still, we have perhaps 60% odds that we get a hike and a bias for further tightening with no specifics, 30% odds of some dovish “pivot optionality” similar to the language. 10% odds of a insistence on maintaining a hawkish message because of the kinds of concerns expressed in the February statement (for example, that spending to address a recent flooding disaster could have an additional inflationary impact).

Table: FX Board of G10 and CNH trend evolution and strength.
The US weakness only exceeded now by CNH weakness and the HKMA was also out intervening in the USDHKD rate to maintain the upper edge of that trading band. The AUD has rebounded from aggravated weakness of two weeks ago, but has yet to show a sustained rally. NOK and CAD not getting as much of a boost as one might expect from the oil surge. Sterling enjoying broad strength.

Table: FX Board Trend Scoreboard for individual pairs.
AUDUSD needs to maintain above the 200-day moving average and follow through higher to confirm the new uptrend attempt here. NOKSEK has softened up the long downtrend with this latest reversal, but may only be ready to get something new going to the upside if oil prices can sustain a run higher as well.

Upcoming Economic Calendar Highlights

• 1400 – US Feb. JOLTS Job Openings
• 1400 – US Feb. Factory Orders
• 1430 – UK Bank of England Chief Economist Huw Pill to speak
• 1730-45 – Fed speakers Cook and Collins at conference
• 2245 – US Fed’s Mester (non-voter) to speak
• 0200 – New Zealand RBNZ Official Cash Rate decision