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AUD/USD approached a higher high in early Asian trades but retreated after reaching 0.6730. The pair is currently trading and has not seen any significant changes. In early Asian hours, risk appetite improved along with several high beta currencies on the back of coordinated efforts from major central banks on the liquidity crisis.
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Last week, many commercial banks started to collapse one by one, with Credit Suisse being one of the largest. Swiss authorities urged UBS to acquire the troubled Credit Suisse over the weekend. At the same time, other major central banks such as the Fed, ECB, SNB, and BoE are trying to ease the liquidity crisis. The Fed opened swap lines for supplying US dollars to several major central banks to ease the drain on liquidity on the US dollar front as it is the world’s reserve currency. The Bank of Japan remains isolated from this dollar supply program as there is no evidence of financial stress. However, two European commercial banks are under surveillance for liquidity contagion which is a possible reason for investors to be cautious despite the swap lines. On the other hand, the PBoC has kept its benchmark interest rate unchanged as it has cut the Reserve Requirement Ratio by 25 bps on Friday. The consistent easing by the PBoC has widened the yield differential with others and is likely to keep capital outflows intact. Earlier comments from RBA Assistant Governor Christopher Kent suggested the bank would consider financial conditions at its next policy meeting, but downplayed the current scenario by saying it was only a small number of poorly managed banks.
All eyes are on the FOMC meeting if they still deliver a 25 bps rate hike and if so what is the guidance going forward? The most likely scenario is a deal, but be prepared for other surprises.
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