Currencies range bound as bond prices continue to rise

Daily Currency Update

The Australian dollar maintained a relatively narrow trading handle through Tuesday, as markets seem content in ignoring recent RBA rhetoric and watching global rates rise. The sell off across global bonds continued as markets scramble to adjust central bank policy expectations. US treasury yields rose with 10-year notes nearing 2% while European bonds advanced 6 basis points and UK bonds rose 8 points, even Japanese bonds rallied. Against this backdrop, the AUD edged toward intraday highs at 0.7145. The market remains hawkish in its expectations for RBA policy, ignoring recent commentary from policymakers and pricing in a rate hike as early as June. Many expect the Bank will eventually align itself with broader market estimates, following its counterparts in adopting a more hawkish approach to monetary policy tightening. With little of note on today’s domestic macroeconomic calendar, our attentions remain affixed to Thursday’s US CPI print. We expect some easing in price pressures through January, yet annualised rates will likely remain elevated. Should the core inflation rate extend above 6% the AUD may come under pressure as markets again price a sharp increase in US rates.