AUD/USD drops to near 0.6700 on less-hawkish RBA minutes

• AUD/USD has slipped firmly to near 0.6700 as RBA considered only 25 bps a viable option for March’s monetary policy.
• Recent upbeat Australian employment figures have conveyed that the fight against sticky inflation is extremely complicated.
• After the collapse of three mid-size US commercial banks, Fed is required to revive the confidence of investors.

The AUD/USD pair has slipped to near 0.6705 amid the release of the less hawkish Reserve Bank of Australia (RBA) minutes. The Board reiterated that further tightening of the POLICY would likely be required given inflation was still too high, the labor market tight and business surveys showed solid activity. RBA policymakers considered only a 25 basis points (bps) rate hike as a viable option for March’s monetary policy.

Investors should be aware of the fact that RBA Governor Philip Lowe hiked its Official Cash Rate (OCR) by 25 bps consecutively for the fifth time to 3.60%. Also, it was the 10^th consecutive interest rate hike by the RBA in its battle against stubborn inflation.

Recent upbeat Australian employment figures have conveyed that the fight against sticky inflation is extremely complicated and RBA policymakers are still required to take tough decisions in times when inflation uncertainty has joined fears of a global banking meltdown.

S&P500 futures have extended Monday’s gains in the Asian session as investors have ignored the fears associated with upcoming monetary policy by the Federal Reserve (Fed), portraying further enhancement in the risk appetite of the market participants.

The US Dollar Index (DXY) has continued to remain sideways around 103.30 as investors are anticipating a less hawkish monetary policy and interest rate guidance. After the collapse of three mid-size United States commercial banks, Fed chair Jerome Powell is required to revive the confidence of investors, which could be done by mild tweaks to the interest rate policy.

Meanwhile, the demand for US government bonds has weakened further as the collaborative effort of various central banks of providing liquidity assistance in the form of US Dollars for supporting commercial banks has escalated inflation expectations. This has led to a rise in the returns offers on US Treasury bonds. The 10-year US Treasury yields have jumped to 3.5%.