Following the weak US non-farm payrolls report published on 3 June a variant of the question we asked back in October is to consider how the AUD market might look if the Fed tightening cycle is finished. The key difference between then and now being that the RBA has eased again in response to low inflation.
Our starting point for considering this question is to consider what no further tightening from the Fed means for the 10Y UST yield. We were effectively at this point in the second week of February when the Jun-17 Fed funds future contract effectively implied no further rate hikes by the Fed out to at least mid-2017. At the time the 10Y UST yield was trading just below 1.7%. So you could argue that the 10Y UST is almost at the point of pricing no further move by the Fed – at least over a 1-2 year horizon.
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David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific's leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
