AUD/USD has reversed directions today and is down 1.07%, trading at 0.6425.
Aussie roller-coaster continues
The currency markets have been busy this week, and the Australian dollar hasn’t missed out on the action. On Wednesday, AUD/USD traded in a range of almost 200 points and ended the day with sharp gains of 1.3%, but has pared most of those gains today. The Aussie has found itself on a nasty downward trend and is down 5.3% in September.
Australia’s economy continues to perform well, and retail sales rose 0.6% MoM, above the consensus of 0.4%. This was slower than the super-strong gain of 1.3% in July, but household spending appears to be holding up, despite the Reserve Bank of Australia’s rate-tightening cycle and high inflation.
Unfortunately for the risk-sensitive Australian dollar, domestic data is not nearly as important as developments abroad, and the combination of a hawkish Federal Reserve and ominous developments in the Ukraine conflict have strengthened the US dollar and heightened risk aversion. With the Fed expected to continue with large hikes and Russia threatening to annex parts of Ukraine on Friday, the Australian dollar is likely to face further headwinds.
Fed officials have signalled that the current cycle may soon come to a close, but the markets aren’t expecting any easing until there are clear signs that inflation has peaked. Although CPI dropped in August, inflation was higher than expected, which poured cold water on any hopes of the Fed making a U-turn on policy. The markets have priced a terminal rate of 4.60%, and with a current benchmark rate of 3.25%, more rate hikes are clearly coming. The US economy is in solid shape, which will enable the Fed to continue raising rates in order to tame red-hot inflation.
- AUD/USD has support at 0.6450 and 0.6363
- There is resistance at 0.6598 and 0.6685
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