AUD: RBA signals support recovery prospects – OCBC

OCBC strategists Christopher Wong and Sim Moh Siong note the Australian Dollar outperformed as global risk sentiment improved and the Reserve Bank of Australia turned more hawkish. OIS pricing now assigns a higher probability to a March rate hike, though OCBC still expects the next move in May. Elevated energy prices and Australia’s LNG and coal exports are seen as supportive for the risk‑sensitive AUD.

RBA repricing and commodities aid AUD

"The risk-sensitive AUD outperformed overnight, supported by firmer global risk sentiment and hawkish signals from the RBA."

"OIS markets added 8bp of tightening to March pricing (now 14bp) after Deputy Governor Hauser warned that inflation remains too high and insufficient policy tightening would pose a problem."

"With this shift, a March hike is now a closer call, even though we continue to see May as the more likely timing for the next RBA move."

"That said, if the risk backdrop stabilises even as oil stays elevated, terms of trade should play a larger role in FX differentiation by paving way for recovery of risk-vulnerable but not energy-vulnerable currencies like the AUD and BRL."

"Australia, as a net exporter of LNG and coal, stands to benefit indirectly from high oil prices, supporting the risk-sensitive AUD."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)