AUD rallies as risk sentiment enjoys a sustained uptick

Daily Currency Update

The Australian dollar extended toward 0.7550 through trade on Monday on the heels of a sustained improvement in risk sentiment. Having bounced between 0.7490 and 0.7515 for much of the domestic session the AUD found support overnight as elevated risk performance and an uptick across key commodities helped propel the currencies toward intraday highs at 0.7556. In the absence of key headline data attention remained affixed to the war in Ukraine and monetary policy expectations. The promise of stricter sanctions had little impact while treasury yields fell. The US yield curve steepened as near-term rate expectations fell and 10-year rates moved higher. Having rejected a break above 0.7550 our focus now turns to the RBA policy update this afternoon. We expect policymakers will remain steadfast in their approach to monetary policy, maintaining the current policy setting until after May’s Federal Election. However, given the RBA remains well behind the curve in adopting a tighter policy bias there is scope to suggest more hawkish rhetoric will be proffered in an attempt to prepare markets for a change in policy through H2.