Spotlight on AUD, USD As Inflation Fears Weigh
Monetary policy makers in Australia and the US release updates on their outlooks this week with a possible ripple effect on the AUD and the USD currency crosses amid inflation fears.
As expected, the Reserve Bank of Australia (RBA) kept its key interest rate at 0.1 percent in its April decision, postponing a rate hike even as inflationary pressures rise in Australia. Traders took note that the central bank dropped its dovish 'patience' rhetoric, signaling future interest rate hikes.
Fiscal and monetary policy makers in the world’s 13th largest economy expect inflation to reach the level of 4.5 percent this year, but raising interest rates too quickly would likely strengthen the AUD in the medium-term while undermining the competitiveness of its raw materials exports to important trading partners in Asia.
The FOMC releases its March meeting minutes on Wednesday. Investors await more details about the central bank’s outlook and will be seeking signals about the next interest rate hike which is widely expected to be 0.5 percent at the time of writing.
The US ISM Services PMI report for March is set for release today, with a possible knock-on effect on the USD. The services PMI benchmark stayed above the level of 50 in February, indicating a brighter outlook. Combined with a strong labour market, traders could reasonably expect more of the same. Any surprises could weigh on the USD in view of inflationary pressures.
Crude oil spot prices
Geopolitical events continue to support high crude oil spot prices as supply-side risks overshadow the global economy’s COVID-19 recovery. The conflict in Ukraine still weighs on sentiment as investors hope for more signs of a truce and remain sensitive to news about crude oil shortages from Russia.
Shares making the headlines
Twitter shares rose on positive sentiment as the trading week opened and Elon Musk disclosed a 9.2 percent stake in the micro-blogging company worth close to 3 billion USD.
Another company associated with Elon Musk – Tesla – announced strong vehicle sales for the first quarter. The news supported the Tesla share price and comes at a time when the wider US economy is recovering from the COVID-19 downturn.
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