Hi everyone! It’s me, Kate Stikhina. You are watching a recap of the Asian session. In the morning, trading unfolded with a cautious sentiment. Risk aversion prevailed. So, the stock indices of Japan, Australia, and New Zealand dipped.
Turmoil in the banking sector that began on March 10 surged volatility in the stock market. It had already been high for some time. The collapse of Silicon Valley Bank and Signature Bank was the largest bank failure in the US since the 2008 financial crisis.
First Republic Bank could face the same fate. A group of several large lenders, including JPMorgan Chase and Citigroup, adopted a rescue package to prevent another bank run. Something similar occurred in the EU. Credit Suisse said it would borrow up to 50 billion Swiss Francs from the Swiss National Bank.
However, Credit Suisse failed to stay afloat. Switzerland's biggest bank, UBS, agreed to buy its ailing rival. Therefore, the attempt to save First Republic Bank from failure may turn out to be unsuccessful as well. After all, there are no guarantees that the measures taken to support the regional bank will be sufficient.
Now, traders are anticipating the upcoming Fed meeting scheduled for March 22. Earlier this month, Jerome Powell hinted at the possibility of keeping rates at a high level for a longer time.
Not long ago, markets factored in a sharper rare increase by 50 basis points following upbeat data. However, after the woes in the banking sector, the odds of such a hawkish move are rather low. The majority of analysts expect the Fed to leave the key rate unchanged.
Yet, inflation in the US is still high. This is why the regulator is likely to raise the interest rate by a quarter point. According to the FedWatch Tool, the ratio of investors betting on a pause and a rate increase of 0.25% was almost equal today. As a reminder, last Friday the number of the latter totaled almost 82%.
The US dollar has been consolidating in the range of 103.6-104.0 since last Friday. For US currency, the banking crisis is a bearish factor. It undermines its strength against its main rivals. Government bonds also added small gains in the morning.
The euro climbed the most against the greenback after the takeover of Credit Suisse by UBS. As a result, the US dollar index has been declining for the third session in a row. It sank below the key level of 104. It was trading at 103.7 in the Asian session.
Nevertheless, the US dollar is not ready to give up. The bears are still unable to regain the upper hand despite a steady drop. The Fed and five other leading central banks announced a coordinated effort to boost the flow of US dollars through the global financial system to keep credit flowing to households and businesses.
Meanwhile, Japan can boast of stability. The BoJ sticks to an ultra-loose monetary policy. Traders do not expect any surprises from the regulator. Japan’s economy is slowly but surely getting back on track. It makes the yen an attractive safe-haven asset.
In addition, the fiscal year ends on March 31. Capital inflows in the yen are constantly growing as companies are converting their profits from dollars to the yen. The dollar/yen pair kicked off trading in a wide range of 130.7–132.7.
The Japanese currency, which is sensitive to the moves of long-term US Treasuries, recouped its losses. It broke through the resistance level of 131. In the Asian session, it was trading at 130.7. Judging by its trajectory, the pair may approach the psychologically important level of 130 in the coming hours. It could also test the levels logged at the start of the year.
Commodity currencies were down due to risk aversion. The Australian dollar is facing strong bearish pressure due to the chance of a banking crisis and mounting uncertainty over the Fed’s rate decision. On Monday, the AUD/USD pair was rather volatile.
In the Asian trade, it was hovering in a bearish corridor of 0.6667-0.6744. The Aussie as a risk-sensitive currency dived to 0.6676, gradually declining. Its downward movement could persist until the Fed meeting or even after it.

00:00 Introduction
00:17 Bank rush
01:28 CME FedWatch tool on FOMC rate
02:31 USDX
03:40 USD/JPY
05:00 AUD/USD
05:56 NZD/USD
06:34 Total

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