AUD/USD SLIDES TO 0.6650 AS MARKETS PARE SVB-LED MOVES AHEAD OF US INFLATION

AUD/USD drops to 0.6650, down 0.25% on a day, as traders position themselves for the US inflation data during early Tuesday. The quote’s latest weakness could also be linked to the market’s fears surrounding China and Russia, as well as downbeat data from Australia. That said, the Aussie pair rose the most since early February on the previous day amid broad-based US Dollar weakness.

National Australia Bank’s (NAB) sentiment indices for February marked downbeat figures and allowed the AUD/USD bulls to take a breather. It should be noted that the NAB Business Conditions dropped to 17 from 18, versus 21 market forecasts, whereas the NAB Business Confidence nosedived to -4.0 compared to 0.0% analysts’ estimates and 6.0% prior.

Elsewhere, US Treasury bond yields print mild gains after falling heavily the previous day. On the same line is the latest minor upside by the S&P 500 Futures. With this, the US 10-year Treasury bond yields seesaw around 3.56%, after bouncing off the monthly bottom of 3.418%, whereas the two-year counterpart bounces off the lowest levels since September 2022 to print mild gains of around 4.05% by the press time.

Apart from the market positioning and NAB data, the AUD/USD traders may also have traced the US inflation expectations to rally the previous day, before marking the latest loss. That said, the US inflation expectations per the 10-year and 5-year breakeven inflation rates from the St. Louis Federal Reserve (FRED) dropped to the lowest levels since early February. In doing so, the inflation precursors dropped for the consecutive fifth and sixth days for the five-year and 10-year gauges respectively.

Above all, the recent rebound in the US Treasury bond yields allowed the AUD/USD pair to consolidate the gains marked due to the US banking regulators’ defense of the Silicon Valley Bank (SVB) and the Signature Bank.

Even so, the blow to the Federal Reserve (Fed) bets seems to challenge the AUD/USD bears ahead of the key US Consumer Price Index (CPI) data for February. As per the latest updates from Reuters, the US Fed Fund Futures have priced in a 69% chance of a 25-bps hike at next week's Fed policy meeting, with a more than 30% probability of a pause. The market last week was poised for a 50-bps increase prior to the SVB collapse, reported Reuters. On the same line could be the CME as it mentioned, “Traders see 33% chance Fed holds rates this month, market pricing shows rate cuts expected as early as June.”

Looking ahead, the US CPI will be important for intraday directions but major attention should be given to the risk catalysts and the yields. That said, the US CPI is likely to ease to 6.0% YoY versus 6.4% prior while CPI ex Food & Energy may slide to 5.5% YoY from 5.6% prior.