As Fed Powell pours cold water on the CPI knee-jerk, the Australian dollar is on the rise.
On the weekly chart, the AUD/USD bears are in command.
Following the Federal Reserve’s chairman’s dovish tone, the AUD/USD is trading back on the bid on Wednesday, up 0.45 percent at the time of writing.
The Australian dollar rose from a low of 0.7430 to a high of 0.7485, boosted by Jerome Powell’s remarks to Congress that the economy was “still a ways off” from the levels the central bank wanted to see before beginning to remove its monetary assistance.
His comments came after the US dollar rose the day before due to a stronger-than-expected Consumer Price Index reading, while the Aussie faced a challenge from broadly weaker risk appetite.
The headline CPI rose 5.4 percent YoY in June, compared to 4.9 percent projected and 5.0 percent in May, and the core CPI rose 4.5 percent YoY, compared to 4.0 percent expected and 3.8 percent in May.
The impact on US rates was significant, with the 10-year increasing to 1.41 percent today and the 2-year to 1.4230 percent. It was the highest level since July 6th.
This was the fourth month in a row that inflation surprised to the upside. The transitory argument was becoming increasingly difficult to maintain.
Following Powell’s comments, the benchmark has now leveled out at 1.3630, the day’s low, helping to moderate expectations of a faster pace of hikes from the Fed.
“We believe that a growing number of FOMC members are adopting this stance. Tapering to us means taking your foot off the gas, whereas increasing rates means putting your foot on the brakes, and there’s a major difference,” Brown Brothers Harriman analysts explained.
If the US data continues to run hot, analysts predict something “more decisive” at either the August Jackson Hole Symposium or the September 21-22 FOMC meeting.
Overall, the risks for the AUD/USD remain balanced, with US rates, offshore stocks, and the upcoming Australian jobs data.
From a longer-term chart technical standpoint, the focus is on the negative as follows:
The price has been testing the environment below the early June lows and prior support structure, as shown in the weekly chart above.
Bears still have a few days till the end of the week to have a lower weekly close this week./n
