Calm descends on FX markets

Markets are breathing a sigh of relief after the turmoil of recent weeks.

Investors hope that peak concerns about the banking sector across both sides of the Atlantic are behind them.

But the dollar has struggled with the world’s premier reserve currency losing close to 3% since early March.

Plunging US Treasury yields have been a big factor in the greenback’s struggles. They are now firming though how far they go as the longer-term impact of the recent upheaval sinks into the wider economy is an important question.

Tighter credit and potential regulations will have a dampening effect on economic activity and may also curb the Fed’s appetite for higher rates ahead.

That means the dollar could find it hard to strengthen significantly going forward.

We did get positive US consumer confidence data which surprised to the upside yesterday. Recent market jitters and focus on the risk of a US recession saw low expectations for the data. But the strong job market seems to be supporting sentiment.

 

AUD stuck in a range

Australian inflation figures released earlier today fell short of market expectations as headline CPI eased lower to 6.8% in February from 7.4% in January year-on-year.

This softer report comes on the back of the latest RBA policy statement and meeting minutes which pointed to policymakers looking for an excuse to pause its rate hike cycle.

This data gives them good reason to do so and it may also be the final rate rise and peak in the hiking path.

The aussie has struggled this month and this year, along with the other commodity dollar, cyclical currencies.

After the high in early February at 0.71577, prices have fallen to a low of 0.65641 a few weeks ago.

There’s been a better bid to prices since then but the major has tracked sideways around the July 2022 low at 0.6680, with the region also being a key battleground between bulls and bears back in November/December.

But buyers will initially need to get past the 200-day simple moving average at 0.6753 and last week’s highs at 0.6755/59 for more prolonged upside.

 

USD/CAD moving lower

CAD is another commodity-dollar which has been in the doldrums recently.

In fact, the latest CFTC data release, which shows positions held by major hedge funds and commercial speculators, highlighted the biggest net short in the CAD since 2008.

For contrarian traders, this type of signal can provide a chance to run against the prevailing “wisdom of the crowd”. Better risk sentiment and oil prices could also help the loonie.

The major printed a “doji” candlestick earlier this month after hitting a five-month high at 1.38618. That top got close to long-term trendline resistance going back to the March 2020 spike.

This warned of indecision and since then prices have traded around 1.37, with the 50-day simple moving average potentially being a target below for bears at 1.35392.