TALKING POINTS: US DOLLAR, POWELL, INFLATION, FED, AUD/USD The US dollar is rising as the scorching CPI report from June stokes bets on stimulus unwinding. Powell is expected to reinforce the Fed’s anti-dovish stance in policy guidelines. The AUD/USD pair might break through critical support near 0.74, implying further losses. The US Dollar was back on the offensive yesterday as the June CPI statistics above expectations, fuelling betting on a faster withdrawal of monetary stimulus (as expected). As the focus now shifts to Fed Chair Jerome Powell’s semi-annual congressional appearance, more of the same could be expected. Today, the central bank chief will testify before the Financial Services Committee of the House of Representatives, and tomorrow, he will testify before the Senate. Inflation is set to take center stage, especially following a 13-year high of 5.4 percent on-year in June. At the Fed’s policy meeting last month, Powell led an unmistakable shift away from dovish extremes. He made it apparent that price inflation had exceeded authorities’ expectations, and he gave updated projecting that included a 50-basis-point rate hike in 2023. Since then, a constant stream of Fed policymakers’ comments has emphasized the shift in their thinking. Most admitted that the moment has come to move away from the ultra-loose approach taken during the Covid-19 outbreak. Some have suggested that interest rates be raised as soon as next year. It’s almost probably on purpose. The Fed is very aware of the impact of its words and takes great care in how it uses them. It is not in the habit of proposing a guiding narrative and fleshing it out through the remarks of various officials just to alter its mind afterwards. As a result, Mr Powell is expected to respond in kind. He’ll undoubtedly temper his statements to avoid conveying a feeling of urgency, but he’ll make it clear that the Fed is aware of the inflationary threat and is prepared to act if necessary. This might push the greenback even higher. SELLERS GRAPPLE WITH KEY LEVEL AT 0.74 IN AUD/USD TECHNICAL ANALYSIS Another bout of US Dollar gain could see the AUD/USD break through critical support near 0.74. A daily closing below 0.7384 reveals the 0.7222-44 inflection zone on the way to the 0.7120-30 objective implied by a recent Head and Shoulders topping pattern. Positive RSI divergence, on the other hand, indicates that negative momentum is fading. It’s still unclear if this signals an impending reversal higher or simply a slowdown following the June selloff. Regaining a foothold above 0.75 may indicate the former, allowing 0.76 to be tested next. TradingViewFX was used to construct the AUD/USD daily chart. RESOURCES FOR TRADING—- Ilya Spivak, DailyFX.com’s APAC Head Strategist, wrote this article. Use the comments area below to contact Ilya, or follow him on Twitter at @IlyaSpivak./n
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