S&P 500 Rejoiced on Fed Buying Corporate Bonds. AUD Eyeing RBA Minutes

US Dollar, Fed Corporate Bond Buying Program, AUD/USD Analysis – TALKING POINTS

• US equity markets swooned before reversing losses as the US Dollar fell

• Federal Reserve said it will start to purchase individual corporate bonds

• AUD/USD nursed losses but gains may be capped ahead of RBA minutes

Wall Street trade had a day of twists and turns after initially seeing major equity indices gapping lower before sharply recovering and ending in the green. The shift in market mood came after Federal Reserve Chairman Jerome Powell announced that monetary authorities will start purchasing individual corporate bonds in addition to ETFs. The acquisition of these assets will be conducted under its Secondary Market Corporate Credit Facility.

In a news release, the Fed said the point of targeting individual corporate debt assets under its $750b program is to “to create a corporate bond portfolio that is based on a broad, diversified market index of U.S. corporate bonds”. After the announcement, the spread of credit default swaps (CDS) on investment grade entities narrowed by six basis points, reflecting an alleviation of tension in credit markets.

The optimism permeated the membrane of asset classes and sent Treasury yields tumbling and cycle-sensitive FX – like NOK, AUD and NZD – higher at the expense of the anti-risk Japanese Yen and US Dollar. Crude oil edged higher while gold prices tumbled. The next major event equity markets will be watching will be the upcoming testimonies from Mr. Powell on Tuesday and Wednesday. Read more about it here.

Tuesdays Asia-Pacific Trading Session

The euphoria during Wall Street trade will likely echo into Asia and help push sentiment-linked assets and emerging market FX higher. Anti-risk currencies like the US Dollar and Japanese Yen may start bracing for what could be another session of losses. AUD will be closely watching the release of the RBA meeting minutes, which – depending on the nature of the text – could curb some of AUD/USDs recent gains.

AUD/USD Technical Analysis

AUD/USD was continuing its descent after being rejected at the early-January swing-high at 0.7018 but was saved by risk appetite over the past 24 hours. The pair is now hovering at a familiar and critical inflection point at 0.6911. If AUD/USD is unable to retest the ceiling from which it had just capitulated, the selloff may deepen. Conversely, puncturing it could inspire additional buyers to enter the market.