U.S. Banks Report Strong Q4 Profits Amid Investment Banking Surge 
Indonesia Plans Higher Asset Yields to Boost Rupiah and Restore Investor Confidence 
South Korea Signals Possible Interest Rate Hike as Inflation Remains Elevated 
Taiwan Central Bank Likely to Keep Interest Rates Unchanged Through 2027 
BoE Policymaker Alan Taylor Signals No Need for Interest Rate Hike Amid Iran War Inflation Risks 
Fed Chair Kevin Warsh Signals Policy Overhaul as Hawkish Rate Outlook Rattles Markets 
RBI Holds Interest Rates at 5.25%, Cuts India Growth Forecast Amid Rising Global Risks 
New Zealand Unemployment and Inflation Debate Intensifies Ahead of 2026 Election 
Jerome Powell Warns Against Politicizing the Federal Reserve, Defends Democratic Institutions 
European Stocks Rally on Chinese Growth and Mining Merger Speculation 
U.S. Treasury Yields Expected to Decline Amid Cooling Economic Pressures 
BOJ Raises Interest Rates to 1% as Inflation Pressures Persist 
UBS Predicts Potential Fed Rate Cut Amid Strong US Economic Data 
Kevin Warsh Faces Early Fed Test as Inflation Risks Challenge Rate-Cut Expectations 
UBS Projects Mixed Market Outlook for 2025 Amid Trump Policy Uncertainty 
The AUD, as a proxy for global risk sentiment, will continue to be buffeted by coronavirus concerns. For Aussie, this week, the major data event has been RBA monetary policy in addition to Aussie trade balance and US unemployment & non-farm data.
Well, we expect two further RBA rate cuts, in April and August, taking the cash target to 0.25%, followed by a small but open-ended ACGB purchase program.
Amid such data events, AUDJPY risk-reversals continue to be priced at a sizeable premium to USDJPY across expiries, most notably in longer maturities (2Y - 10Y, refer above chart). AUDJPY 5Y riskies for instance trade at a 0.8v premium (for JPY calls) over the arithmetic sum of 5Y AUDUSD and USDJPY riskies, which is not an unusual historical occurrence by any stretch but nonetheless suggests a lingering fear of GFC-like non-linearity/discontinuity in the behavior of the underlying spot. We are not convinced that this premium is justified for a number of reasons:
First, from a volatility perspective, AUD has become a pale shadow of the über-risk sensitive asset it once was as structural economic changes in particular, the end of the Australian mining boom and its effects on debt-servicing capacity of strained household balance sheets have ushered in idiosyncratic economic weakness and loosened AUD’s link to the global cycle. RBA’s counter-cyclical response to the growth slowdown of taking the cash rate down to all-time lows and thereby eliminating the traditionally high and positive AU - US yield gap has reinforced the decline in AUD’s risk beta, as carry-seeking speculative long positions have not only disappeared but in fact flipped short in anticipation secular economic weakness.
The result is that GFC era boom-bust cycles of re-and de-leveraging of AUD longs are now history, and it is no longer unimaginable that bouts of risk-aversion could one day squeeze AUD higher should the initial condition going into such shocks be a large stock of short AUD positions. Courtesy: JPM
