AUDUSD Testing Bull Channel Lows
Aussie Under Pressure
The Aussie Dollar remain under pressure ahead of the weekend with the pair now down almost 2% on the week and around 5.5% from the YTD highs in May. The hawkish shift in traders’ Fed expectations and subsequent Dollar rally has been a big driver of the pressure on AUD.
Fed & RBA Expectations
Market pricing for a Fed rate hike by year end surged to around 85% on the back of the June FOMC last week, having crept up from 40% to 60% in the weeks prior. A series of strong inflation readings fuelled the shift with USD breaking out accordingly. Against this backdrop, AUD has been well-sold, echoing the broader pull back in risk assets we’re seeing in the cross-market space. Indeed, while Fed rate hike expectations have risen sharply, RBA tightening expectations have started to ease with traders no longer expecting second-round inflation effects to be as severe as initially thought. Indeed, some players have started to talk about the prospect of RBA rate cuts early next year.
US Inflation Uncertainty
Looking ahead, however, there is room for AUDUSD to recover if we see a shift in Fed expectations. Yesterday’s US core PCE data showed that pressures stalled last month and with oil prices having fallen sharply in recent weeks we could start to see US inflation expectations (and therefore, Fed expectations) start to shift. Indeed, market pricing for a hike by year end has already cooled to around 80% from 85% ahead of the data. If we see that figure moving further down, USD could start to pull back, offering AUD and risk-FX some better support near-term.
Technical Views
AUDUSD
The sell off in AUDUSD has seen price breaking below the .6942 level, now testing the bull channel lows. Bulls need to defend this marker to maintain the broader bullish outlook and put focus on a recovery towards .7153. If we break lower, however, .6802 will be the next support to watch.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.