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The Australian dollar is reported to have climbed to a higher level of 0.6750 in early European session today. Aussie assets are stronger after the Fed chairman signaled a temporary pause on rate hikes after the interest rate was raised 25 bps to 4.75%-5.00%.
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The Street is hoping that Powell is considering a pause amid concerns that the three US mid-sized banks will be shaken up. However, the Fed is still holding its guns in the face of persistently high inflation as one interest rate is still in the pipeline and the central bank is not looking for a rate cut this year. The S&P 500 extended its dramatic recovery as investors shifted their focus to signals of a pause in interest rate hikes from expectations of tighter credit conditions by US banks to rise. Powell in his comments on the US banking sector claimed that US banks are strong and resilient, but the recent financial instability cannot rule out more filtering by banks when cash advances are disbursed later. Tighter credit conditions by US banks could lead to delays in cash advances for households and businesses, which would also impact inflation, overall demand, and economic activity. Companies could face a working capital crisis if cash advances are delayed and are vulnerable to operating losses. The DXY index is an inch away from the cushion at 102.00 in early European session. It is down more in USD index and cannot be ruled out as the absence of blanket insurance for all deposits by US Treasury Secretary Janet Yellen has dented investor confidence in the US government. On the Aussie side, investors are awaiting the release of preliminary data by S&P Global PMI (March). Consensus is for manufacturing PMI to contract to 50.3, and services PMI to plunge to 49.9.
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