Australian dollar trembles at Fed’s approach
David Llewellyn-Smith | Jan 31, 2023 10:55
DXY finally rebounded as EUR fell:
That triggered reversals across all markets. AUD down:
Commods down:
Miners (NYSE:RIO) down:
EM stocks (NYSE:EEM) down:
Junk (NYSE:HYG) down:
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US yields up:
Stocks down:
The approach of the Fed put the jitters through markets. It will probably remain hawkish despite likely reducing its hiking pace to prevent an over-loosening of financial conditions.
However, inflation is cooling fast. CorePCE has faded to 0.3% per month:
Though Core Services are still sticky:
As wage growth is still strong but is also cooling fast:
The market has already rallied on these numbers What will matter for the Fed is how it frames the terminal rate and any easing ahead.
I doubt the dot plot will be dovish yet so that may support a return to AUD weakness.
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