AUD/USD dips towards 2-week lows

Today’s headlines

What’s happening: The Australian dollar fell versus the US dollar this morning as investors continued monitoring the ongoing Middle East conflict.

What happened: Investors remained cautious about US President Trump’s announcements to end the conflict with Iran.

Markets also weighed in softer inflation figures from Australia, released this morning.

Why it matters: US President Trump said he had ordered the military to hold off strikes against Iran’s power and energy plants for five days amid “productive” talks with Tehran. However, Iran’s Parliamentary Speaker said no conversation has taken place with the US.

The US has been looking to initiate talks with Iran, including a one-month ceasefire and a 15-point settlement plan to end the conflict. Investors remained cautious, however, on news of the deployment of US ground troops in the Middle East.

Data released this morning showed the increase in consumer prices in Australia came in unchanged from the previous month in February, at 0.4%. Annual inflation eased to 3.7% from 3.8% in January and came in below market expectations of 3.8%.

Underlying inflation was also lower than expected, signalling some easing in core pressures. However, inflation remained above the Reserve Bank of Australia’s 2%-3% target range, raising uncertainty related to the monetary policy outlook.

Markets now expect the odds of further rate hikes as evenly balanced for the meeting in May.

Last week, the US Federal Reserve kept interest rates unchanged, citing higher inflation as policymakers monitored the ⁠impact of the war.

Weakness in the US dollar lent some support to the AUD/USD forex pair. The US dollar index, which measures the greenback’s performance versus a basket of major peers, fell around 0.2% to 99.24 this morning.

The AUD/USD pair declined 0.3% to 0.6977 this morning, while the S&P/ASX 200 surged almost 2% to trade at 8,546.30.

What to watch: Investors will keep an eye on the ongoing developments related to the Middle East conflict.

Minutes from the recent policy meeting of the Reserve Bank of Australia, due to be released next week, will remain in focus. Data on housing credit, manufacturing PMI and balance of trade will also be released next week.

The markets today

European stocks in focus today ahead of a basket of major economic reports

Context: Equity markets in Europe settled mostly higher on Tuesday amid persistent uncertainty related to the US-Iran war.

Details: Data released this morning showed that the S&P Global Eurozone manufacturing PMI climbed to 51.4 in March from 50.8 in the previous month. The figure also came in better than market estimates of 49.4. The S&P Global flash services PMI declined to 50.1 in March from 51.9 in February and missed market estimates of 51.1.

The Eurozone composite PMI fell to 50.5 in March from 51.9 in February, missing market estimates of 51.0. Although the latest reading signalled marginal expansion in the bloc’s private sector, it was the weakest in 10 months.

The EU’s passenger car registrations climbed 1.4% year-over-year to 865,437 units in February following a 3.9% contraction in the previous month.

ASML’s stocks recorded sharp gains on Tuesday after SK Hynix announced plans to order lithography equipment worth $8 billion from the company. Shares of chemical producers also rose, with stocks of Air Liquide and BASF recording healthy gains during the session.

Bank stocks bucked the trend, declining on fears of accelerating inflation, with shares of Nordea and ING settling lower on Tuesday.

The STOXX Europe 600 Index added 0.43% to close at 579.28, while London’s FTSE 100 gained 0.72% to settle at 9,965.16 and France’s CAC 40 rose 0.23% to 7,743.92. Germany’s DAX 40 slipped 0.07% to close at 22,636.91.

What to watch: Investors await the release of data on Germany’s Ifo business climate (1300 UAE Time), Ifo current conditions (1300 UAE Time) and Ifo expectations (1300 UAE Time) today.

Germany’s Ifo business climate index, which climbed to 88.6 in February from 87.6 in the previous month, is expected to decline to 86.1 in March. Analysts expect Germany’s Ifo current conditions index to decline to 86 in March from 86.7 in February, while Ifo expectations index is expected to fall to 86 in March from 90.5 in February.

Other Markets: US trading indices closed lower on Tuesday, with the Dow Jones index, S&P 500 and Nasdaq 100 down by 0.18%, 0.37% and 0.77%, respectively.

The news shaping the markets

Russia fired a huge wave of almost 1,000 drones in one of its biggest aerial attacks on Ukraine. The news sent the USD/RUB pair lower in forex trading this morning.

South Korea’s composite consumer sentiment index fell to 107.0 in March from 112.1 in the previous month, lending support to the USD/KRW forex pair.

Sri Lanka’s central bank held its benchmark interest rate at 7.75%, which sent the USD/LKR pair lower in forex trading this morning.

Mexico’s economic activity index declined 0.3% year-over-year in January, compared to a 3.3% surge in the previous month, which lent support to the USD/MXN forex pair.

US crude oil inventories surged by 2.3 million barrels in the week ended March 20, versus market estimates of a decline of 1.3 million barrels, sending the WTI crude oil prices lower this morning.

What else to watch today

Brazil’s FGV consumer confidence (1500 UAE Time), US MBA mortgage applications (1500 UAE Time), current account (1630 UAE Time), export prices (1630 UAE Time), import prices (1630 UAE Time), EIA crude oil stocks change (1830 UAE Time), India’s M3 money supply (1530 UAE Time) as well as Russia’s consumer confidence (2000 UAE Time) and industrial production (2000 UAE Time).