Daily Report

This week could potentially be pivotal for AUD/USD, as the Reserve Bank of Australia and the US Federal Reserve will both be announcing key interest rate decisions – the RBA on Tuesday and the Fed on Wednesday.

Amid the euro’s pullback this week from long-term highs against both the US dollar and Japanese yen, the Bank of Japan reduced its purchases of Japanese government bonds on Tuesday, leading to some knee-jerk speculation that the central bank could wind down its massive stimulus program at some point in the foreseeable future.

After a prolonged risk-on market environment, where it seemed that nothing short of catastrophe could faze investors, this week has finally seen a marked return to elevated risk aversion and higher market volatility. On Wednesday, this risk-off sentiment continued to be driven in large part by US political concerns, after fired FBI Director James Comey was reported to have written a memo months ago detailing President Trump’s private request to end an investigation into Michael Flynn, Trump’s former national security adviser.

Boosted largely by a sharply extended fall in the Japanese yen, GBP/JPY rose to a new year-to-date high on Tuesday, approaching key resistance around the 148.00 handle and re-testing December’s highs. As Frexit concerns have dissipated for the time being after pro-euro Emmanuel Macron was voted in as President-elect of France over the weekend, currency market focus has shifted back to the beginning stages of UK/EU Brexit negotiations, the UK’s snap election in June, and the Bank of England’s monetary policy decision on Thursday.