Forex Market: AUD/USD holds gains amid higher commodity prices, greenback firms ahead of US inflation data

AUD/USD was holding prior-session gains on Tuesday, supported by improved risk sentiment in global stock markets and higher commodity prices.

“We stick to the view that the A$ should remain capped by the $0.7140/70 level given the very different stance that the RBA is maintaining versus a wide range of other central banks,” Richard Franulovich, head of FX strategy at Westpac, was quoted as saying by Reuters.

“We would look to use weakness towards $0.70 as an opportunity to buy for strength later in the year,” he said.

Prices of Australia’s major export commodities remained near recent highs, with coking coal at an all-time high and iron ore at a five-month peak.

Last week the RBA noted that the halt of its AUD 275 billion bond-purchasing program did not suggest an interest rate hike in the near term, while the bank’s Board would remain patient on policy until actual inflation is sustainably within the 2%-3% target range.

Markets are not pricing an RBA rate hike to 0.25% until June. At the same time, futures markets are pricing a nearly 30% chance of a 50-basis point rate hike by the Federal Reserve in March, while keeping the US Dollar supported.

Surprisingly strong US employment data last week has placed additional focus on inflation numbers, due to be released on Thursday.

“The surprise beat by the non-farm payroll numbers (which we were warned by Fed officials and the White House would be very weak due to Omicron) leaves the Fed in an unexpected territory,” NatWest Markets rates strategist Jan Nevruzi said.

“The CPI will be critical on how the narrative develops until the March (meeting),” he added.

The US Dollar Index was up 0.25% to 95.649 on Tuesday.

As of 9:30 GMT on Tuesday AUD/USD was inching up 0.04% to trade at 0.7129, while moving within a daily range of 0.7106-0.7138.

Bond Yield Spread

The spread between 2-year Australian and 2-year US bond yields, which reflects the flow of funds in a short term, equaled -24.43 basis points (-0.2443%) as of 9:15 GMT on Tuesday, up from -27.4 basis points on February 7th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 0.7107
R1 – 0.7149
R2 – 0.7172
R3 – 0.7214
R4 – 0.7256

S1 – 0.7084
S2 – 0.7042
S3 – 0.7019
S4 – 0.6996