Australian Dollar Falls Amid Global Risk Aversion

• Date: March 13, 2024
• Market Update: The Australian dollar was under pressure on Friday, with intensifying global risk aversion overcoming support from higher yields. The Aussie traded flat at $0.7080, having slipped 1.0% overnight and away from a 45-month peak of $0.71875.

Weekly Performance

The Aussie still managed to hold weekly gains on a crowd of peer currencies, rising 0.7% for the week. However, the kiwi dollar had a tougher time, losing 0.8% for the week to stand at $0.5854. A break of support at $0.5837 would risk a retreat to $0.5712.

Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data

Bond Market and Inflation Fears

Rising oil prices have fed inflation fears globally, lifting 10-year yields 13 basis points so far this week to as far as 5.00%, highs not seen since mid-2011. Markets have sharply narrowed the odds on the Reserve Bank of Australia hiking the cash rate a quarter point to 4.10% at its March 17 board meeting.

Rate Hike Expectations

All four major Australian banks are tipping a rate rise next week, with most also looking for a move to 4.35% in May. Markets imply around an 80% chance of a March hike and are fully priced for 4.35% by August. A rate hike would equal the post-pandemic peak for rates hit when core inflation peaked at 6.8%.

Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline

Central Bank Meetings

A gaggle of other central banks meet next week and are expected to stay on hold, with a risk the Federal Reserve and European Central Bank sound more hawkish on inflation.