ANZ looking at what is expected from Yellen's speech through the lens on how it will impact on Australia and the AUD
- The short-term market is hanging onto the words of Fischer, Williams, and Dudley, hoping that a clearer signal is provided about the timing and quantum of short-term rate hikes
- Yellen will need to clearly echo these sentiments for the AUD to depreciate markedly
- However, this message will also be complicated by any discussion of a lower neutral rate. If signals are provided that the neutral rate has been downgraded further, then any reaction to the signalling on the very near-term trajectory of rates will likely be muted as it implies that policy is not as accommodative as thought and that the path higher will be slower.
- This suggests the US curve may flatten, with the front end selling off more than the long end. This should see the USD strengthen further against the EUR and JPY, but a somewhat muted reaction in the AUD and NZD. This would suggest that we are due for some unwinding of the recent EUR/AUD outperformance.