Australia: The Australian Dollar remains steady below USD0.9300 after being placed under pressure yesterday on interest rate speculation.

The markets have reduced their expectations on interest rate hikes. Another 0.25% rate rise by the RBA, in the May Board meeting, has decreased in likelihood, from 33% to 20%, a significant change in sentiment in the market.

The Australian 2-year bond yield is down 10bps from its recent high following the RBA's rate hike Tuesday.

We follow the correlation between this and the AUD, and this fall in the 2-year bond yield would suggest there is a strong chance of a further sell off in the AUD to ~ 0.9225. Just when you think the AUD is going to roar towards parity again and we look at parity recognition venues, it sells off.

The recent high just shy of 0.9400 seems high and the 0.9220/0.9390 range does seem to truly confirm sentiment that has played itself out all year about how the AUD gets top heavy above 0.9350.

So for the moment, resistance appears pretty real there and support is near 0.9230. Yesterday's NAB business survey for March was strong pointing to Australian domestic demand growing at 4.5%, a big result.

Unemployment seems to be tracking towards record lows again, industrial capacity is getting stretched, and should unemployment fall to a miserly 4.5% by end 2010 and 4% by end 2011, you would think the RBA is totally positioned to raise rates above 5% in  2010.

So while the RBA could skip May, it is game on at subsequent Board meetings in 2010 and the AUD will oscillate with potential to trade higher until the US start lifting interest rates.

Today sees the Westpac consumer confidence report for April but more important is US Fed Chairman Bernanke's testimony to Congress tonight. The message that Bernanke delivers on the outlook for official interest rates this year will be critical for the USD and therefore our AUD.

Major: Last night, the main two areas of focus were the Greek bill auction and speculation the US Federal Reserve would prepare the market for a mid-year interest rate hike.

The USD jumped on rumours suggesting the US Fed was going to prepare the market for a mid-year interest rate hike by changing the language in its next FOMC statement due 28 April.

Provided by