HomeNewsAUD/USD: Aussie Jumps, Dollar Dumps, After FOMC

AUD/USD: Aussie Jumps, Dollar Dumps, After FOMC

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The AUD/USD pair hurdled a significant technical level yesterday as the US Dollar sold-off following yesterday’s FOMC meeting.

As expected, the fed delivered a 75-basis-point rate hike. However, Fed Chair Powell’s dovish comments at the post-meeting presser sparked a wave of US Dollar selling.

Recent economic data suggest some areas of the US economy is slowing. The Flash PMI reading earlier this month showed a sharp contraction in business spending, leading many analysts to forecast an impending recession across the pond. Subsequently, Fed Chairman Powell’s tone has shifted from uber-hawkish to a softer stance.

Speaking to reporters, Powell said future interest-rate decision will be “data-dependent”. Furthermore, he added that it’s likely the committee “will slow” the pace of tightening to reflect the weaker economic backdrop.

The change of tone sent US Indices sharply higher. The SP500 gained 2.6% and the Nasdaq finished higher by almost 5%.

The US Dollar Index reversed earlier gains, ending the session down -0.70% at 106.46, helping the Aussie gain +0.75% to a four-week high of 0.7012.

Mixed Economic Data

The US Dollar weakness was enough to offset the Aussie Dollar’s earlier short-comings following the lower-than-expected inflation data in Australia.

The AUD/USD pair started the day on the back-foot after the Consumer Price Index (CPI) showed retail prices rose at 1.8% in Q2, lower than the forecast 1.9% increase.

Whilst, inflation rising at a lower-than-expected rate is undoubtedly positive for the economy, this morning’s retail sales data suggests the damage may already be done.

Australian retail sales for June increased by just 0.2% month-over-month (MoM), way below the expected 0.5% increase.

Taking the domestic data into account, it’s difficult to build a long-term bullish view on the Aussie Dollar. That being said, the technical outlook points to more upside in the near term.

Aussie Dollar to US Dollar Technical Analysis

The daily chart shows AUD/USD has broken out of its long-term downtrend. Furthermore, the pair is now trading above the 50-Day Moving Average (DMA) at 0.6990 (green line).

Considering the bullish breakout, we can expect Aussie buying from the technical community. Should the US Dollar weakness continue over the coming days session, a potential target on AUD/USD is the 100-DMA at 0.7120.

However, a close below the trend line at 0.6950 would suggest the bears are back in control, squashing the short-term bullish outlook.

AUD/USD Price Chart

Elliot Laybourne
Elliott is a former investment banker with a 20 year career in the city of London. During this time he held senior roles at ABN Amro, Societe Generale, Marex Financial and Natixis bank, specialising in commodity derivatives and options market-making. During this time, Elliott’s client list included Goldman Sachs, JP Morgan, Credit Suisse, Schroders Asset Management, and the Pennsylvania State Public School Employees Retirement System, amongst others. Today, he splits his time between Thailand and Dubai, from where he provides trading consultancy and business development services for family office and brokerage clientele.