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AUD/USD ANALYSIS & TALKING POINTS
- Australian inflation projected lower may exacerbate AUD weakness.
- FOMC forward guidance crucial.
- Double top could lead to a 0.6700 retest.
AUSTRALIAN DOLLAR FUNDAMENTAL BACKDROP
The Australian dollar looks to end the week over 1% weaker against the US dollar as markets prepare for next weeks Federal Reserve interest rate decision. US Treasury yields have ticked higher since yesterday’s initial jobless claims data missed estimates thus reiterating the strong labor market in the US. If we look at the implied Fed funds futures below, money markets are almost certainly pricing in a 25bps rate hike next week. What will be of interest to traders is the forward guidance provided and whether or not there is a change from the prior meeting and economic data leading up to the announcement.
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FED INTEREST RATE PROBABILITIES
Source: Refinitiv
With no data scheduled for today, attention shifts to next weeks data that include significant releases outside of the FOMC including consumer confidence, durable goods orders, US GDP, core PCE (the Fed’s preferred measure of inflation) and Michigan consumer sentiment (see economic calendar below).
From an Australian perspective, inflation is expected to fall once again after peaking at 7.8% in Q4 of 2022 which could weigh negatively on the Aussie dollar. The Reserve Bank of Australia (RBA) is expected to continue with roughly 44bps of additional rate hikes into early 2024 but there is chance of a dovish repricing should inflation figures reveal a sharp drop.
AUD/USD ECONOMIC CALENDAR (GMT +02:00)
Source: DailyFX economic calendar
TECHNICAL ANALYSIS
AUD/USD DAILY CHART
Chart prepared by Warren Venketas, IG
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Daily AUD/USD price action reveals a double top formation (blue) on the daily chart above that is still quite far away from neckline support around the 0.6600 psychological handle. The first port of call for bears will be the 50-day (yellow) and 200-day (blue) moving averages respectively. Yesterday’s long upper wick could supplement this downside bias with a confirmation candle close below 0.6700 likely initiating a significant move lower towards the neckline region.
Key resistance levels:
- 0.6800
- 0.6772
Key support levels:
- 200-day MA
- 0.6700
- 50-day MA
- 0.6620
IG CLIENT SENTIMENT DATA: BEARISH
IGCS shows retail traders are currently net LONG on AUD/USD, with 59% of traders currently holding long positions. At DailyFX we typically take a contrarian view to crowd sentiment resulting in a short-term downside disposition.
Contact and followWarrenon Twitter:@WVenketas
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.