56.64 F
New York
May 19, 2022
AUD/USD falls towards 0.7070 but in the week gained around 0.15%
Business

AUD/USD falls towards 0.7070 but in the week gained around 0.15%

The Australian dollar finished the week in an upbeat tone, with gains of 0.15%.
A dismal market mood was not an excuse for the AUD to appreciate vs. the greenback.
The pace of rate hikes by the RBA/Fed would favor the US dollar.

The AUD/USD snapped five consecutive weekly losses and is recording decent gains of 0.15%, as Wall Street closes in the red amidst a dismal sentiment, courtesy of central bank tightening, as investors reposition their portfolios once the US central bank hiked rates 50-bps for the first time in 20-years. At the time of writing, the AUD/USD is trading at 0.7070.

Wall Street’s printed losses between 1.03% and 2.42%, putting an end to a volatile week led by three central banks tightening monetary policies as they scramble to tackle inflation towards their target levels. Furthermore, the US Department of Labor reported that the US economy added 428K new jobs to the economy, smashing expectations, while the Unemployment Rate at 3.6% was unchanged.

Aside from this, the US Dollar Index, a measurement of the greenback’s value against a six currencies basket, is pairing early day losses, up 0.11%, currently at 103.658, while the US 10-year Treasury yield reached a YTD high around 3.131%.

The RBA and the Fed hiked rates, but at a pace that favors the greenback

At the beginning of the week, the Reserve Bank of Australia (RBA) surprised the markets with a 25-bps rate hike, the first since November 2010. Market participants expected a lift-off of 15-bps, to leave rates around 0.25% though the central bank stuck to the 25-bps path. Also, the RBA began the reduction of the stimulus, allowing its portfolio of bonds to run down as they mature.

The AUD/USD initially reacted upwards, though faced strong resistance around 0.7147 as traders prepared for the Federal Reserve’s meeting.

On Wednesday, the Fed decided to increase the Federal Funds Rates (FFR) by 50-bps points to the 1% threshold as foreseen by the majority of the economists and announced the quantitative tightening at a pace of $47.5 billion in the first three months, followed by an adjustment capped at $95 billion a month.

At his press conference, Fed Chair Powell said that 75-bps increases are not something the Fed is not actively considering it. He added that “if we see what we expect to see,” 50-bps increases would be“on the table” at the following couple of FOMC meetings.

On the headline, the AUD/USD immediately surged above the R1 daily pivot at 0.7150, rallying sharply towards the R3 pivot point around 0.7250, and paired some of the last week’s losses.

That said, Wednesday’s rally in global equities was perceived as a sign of relief that a higher Fed rate hike, probably a 75-bps, brought Fed’s St. Louis President Bullard, did not happen. However, on Thursday, market participants made a U-turn, dumping equities, flighting towards safe-haven assets, and boosting the USD, the JPY, and the CHF.

Therefore, once both central banks’ decisions are in the rearview mirror, the AUD/USD might depreciate in the near to medium term, as money market futures expect the FFR to be around 2% by the summer, contrarily to the RBA’s cash rate, which is expected to be at around 0.85%.

Key Technical Levels

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Read More

Related posts

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Accept Read More

Privacy & Cookies Policy