Anna 
The Australian dollar (AUD) is navigating around the psychological level of 0.6600 on Monday, influenced by heightened geopolitical tensions involving the US and UK intensifying operations against Iran-backed Houthi terrorists in Yemen. This uncertainty in the market is countered by the AUD/USD exchange rate, which has risen due to weakness in the US dollar. The latter is primarily driven by lower long-term US Treasury yields.
Speculation about a potential early interest rate cut by the Reserve Bank of Australia (RBA) has impacted the Australian dollar negatively. Recent disappointing data on Australian consumer confidence and employment change have fueled this speculation. However, optimism is injected into the market as the Australian dollar is expected to gain from a surge in domestic stocks, mirroring the rebound in US stocks that set new highs on Friday. This surge is driven by expectations that the US Federal Reserve (Fed) may lower interest rates later in the year.
Global stock markets have also been positively influenced by optimistic forecasts from TSMC, the world’s largest chip foundry, predicting revenue growth of more than 20% in 2024.
In China, the People’s Bank of China decided to maintain stability in the one-year and five-year loan benchmark rates (LPR), with the one-year rate at 3.45% and the five-year rate at 4.20%.
Despite the ongoing losing streak of the US Dollar Index (DXY), concerns about disruptions to maritime trade in the Red Sea due to increased actions against Iran may provide some support for the dollar. The potential impact on shipping routes and increased insurance costs could lead to risk aversion, prompting traders to seek the safe haven of the US dollar and potentially exerting downward pressure on AUD/USD.
San Francisco Federal Reserve President Mary Daly emphasized on Friday that there is still work to be done to bring inflation down to the 2.0% target. She stated that it is too early to consider an imminent rate cut. Atlanta Fed President Raphael Bostic maintained expectations for a rate cut but highlighted flexibility in timing based on data, emphasizing the Fed’s dependence on economic indicators.
