AUD/USD remains stuck in a range as RBA signals a pause and US-Iran stalemate extends
The desk sees AUD/USD remaining rangebound as geopolitical tensions and central bank signals create a cautious environment. Per the full note source, the US dollar has gained support amid escalating tensions in the Strait of Hormuz, while the RBA's recent pause in rate hikes has left the Australian dollar vulnerable. With the Fed's shift away from an easing bias and the RBA's more neutral stance, the market is positioned for potential volatility as economic data releases loom. Upcoming US data, particularly the NFP report, could serve as a catalyst for movement in the pair.
What the desk is arguing
The desk believes that AUD/USD is likely to remain trapped in its current range due to a combination of geopolitical tensions and central bank policies. Per the full note source, the US dollar has found support from rising tensions in the Strait of Hormuz, which has overshadowed the RBA's recent decision to pause rate hikes at 4.35%.
The RBA's cautious approach, as indicated by Governor Bullock's comments about the current cash rate being 'a bit restrictive,' suggests that the central bank is prioritizing stability amid uncertain global conditions. This has led to a market expectation of a delayed rate hike, with the next potential increase not anticipated until September at the earliest.
Where it sits in our coverage
Our consensus target for AUD/USD is 1.075, with a range from 1.04 to 1.12. Notable firm targets include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26) - citi: 1.12 (Mar26)
This view aligns with jpmorgan, which shares a similar outlook, while bofa presents a more bearish stance at the lower end of the range. The desk's target sits comfortably within the consensus spread, reflecting a balanced view of the current market dynamics.
How other firms see it
Firms like jpmorgan and citi are aligned with the desk's perspective, emphasizing a cautious approach to AUD/USD amid geopolitical uncertainties. Conversely, bofa holds a contrary view, suggesting a more bearish outlook for the pair.
The trajectory of USD/JPY is also worth monitoring, as it may reflect broader market sentiment influenced by Fed policy shifts and geopolitical developments. Additionally, keep an eye on the AUD/NZD cross, which could provide insights into the relative strength of the Australian dollar against its New Zealand counterpart.
What the calendar says
With the US NFP report set for Friday, traders should prepare for potential volatility in AUD/USD as this key data point could significantly influence market sentiment and positioning ahead of the weekend.
Key takeaways
- 01AUD/USD remains rangebound due to geopolitical tensions and central bank signals.
- 02The US dollar is supported by rising tensions in the Strait of Hormuz.
- 03The RBA's pause on rate hikes has left the Australian dollar vulnerable.
- 04Upcoming US economic data, particularly the NFP report, could act as a catalyst for movement.
Market implications
Watch for AUD/USD to react to the upcoming NFP report on Friday, as stronger-than-expected employment data could bolster the US dollar further. A break above 1.08 could signal a bullish shift, while a drop below 1.05 may indicate bearish sentiment.
FUNDAMENTAL OVERVIEW USD: The US dollar started the week on a positive note following rising tensions in the Strait of Hormuz. Yesterday, we got reports and denials about Iran firing on US ships in the Strait which gave the greenback a boost. Trump said the US sank 6 Iranian fast boats while Iran denied it.
Iran also launched a surprise attack against the UAE oil route that bypasses the Strait of Hormuz in Fujairah. This latest escalation is likely to keep the US dollar supported as the risk sentiment stays more on the defensive. Trump has played things down for now, but the situation could worsen quickly.
Overall, we are now in a consolidation phase as we await the next key development in this US-Iran stalemate. The Fed is slowly abandoning the easing bias amid resilient US data and elevated energy prices. The reopening of the Strait could weigh on the greenback in the short-term as oil prices will likely crater and rate cut bets will increase.
After that though, the focus will quickly turn back to the Fed and the economic data. With the end of the war, the increase in economic activity could keep inflation higher for longer and eventually even require rate hikes to bring it sustainably back to the 2% target that the Fed has been missing since 2021. AUD: On the AUD side, the RBA raised the Cash Rate to 4.35% as widely expected today and signalled a pause.
In fact, the central bank added in the statement the key passage "having raised the cash rate three times, monetary policy is well placed to respond to developments, and the Board is focused on its mandate to deliver price stability and full employment”. The RBA has also revised its forecasts for the Cash Rate by matching the market expectations of two more rate hikes by year-end. Governor Bullock doubled down on the more neutral tone as she stated that “the cash rate level is now a bit restrictive” and “that gives us space to see how the conflict plays out”.
Finally, she added that “with this rate hike, we have space to sit and see what happens”. The market pared back some of the hawkish bets and it now see the next rate hike coming in September at the earliest. AUDUSD TECHNICAL ANALYSIS – DAILY TIMEFRAME On the daily chart, we can see that AUDUSD is consolidating around the cycle highs as the US-Iran stalemate keeps the price action more rangebound.
From a risk management perspective, the buyers would have a much better risk to reward setup around the major trendline to position for a rally into new highs. The sellers, on the other hand, will need a break lower to open the door for new lows. AUDUSD TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME On the 4 hour chart, we can see more clearly the consolidation phase highlighted by the blue box.
The market participants will likely continue to play this range by buying at support and selling at resistance until we get a breakout on either side. AUDUSD TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME On the 1 hour chart, there’s not much else we can add here as the sellers will have a better risk to reward setup around the resistance, while the buyers will have it around the support. The red lines define average daily range for today.
UPCOMING CATALYSTS Today we get the US ISM Services PMI and the US Job Openings data. Tomorrow, we have the US ADP report. On Thursday, we get the latest US Jobless Claims figures.
On Friday, we conclude the week with the US NFP report and University of Michigan Consumer Sentiment survey. This article was written by Giuseppe Dellamotta at investinglive.com.
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