- AUD/USD finished the week with losses, on a sentiment shift, and speculations for an aggressive Federal Reserve.
- During the last week, US inflation data sponsored a recovery for the greenback as US Treasury bond yields aimed north.
- AUD/USD are eyeing the busy economic calendar in Australia and the US next week.
The Australian dollar (AUD) finished the week on a lower note, after hitting a daily high of 0.6884, dropped on a risk-off impulse, as Wall Street ended the session with losses between 0.26% and 0.58%, while the Dow Jones was the outlier, finishing 0.39% above its opening price. At the time of writing, the AUD/USD exchanges hands at 0.6877
Global stocks finished on a lower note as investors increased their bets that the US Federal Reserve (Fed) will tighten policy above earlier expectations. Last week’s January inflation reports in the United States (US), namely the Consumer Price Index (CPI) and the Producer Price Index (PPI), were lower compared to December’s data but above estimates. In fact, the highlight of the week was PPI on a monthly basis, exceeding the consensus and the prior month’s figure, which justified Fed officials’ hawkish commentary during the week.
On Thursday, Cleveland and St. Louis Fed Presidents Loretta Mester and James Bullard commented that they’re seeing compelling evidence to raise rates by 50 bps in upcoming meetings.
Today, Fed Governor Michell Bowman stated that the US central bank has not finished tightening monetary conditions and reiterated that “we haven’t beaten inflation.” Meanwhile, Richmond’s Fed President Thomas Barkin said that getting inflation back to the Fed’s 2% goal “will require more rate increases,” said reporters following an event in Rosslyn, Virginia. “How many of those I think we’ll have to see … what you see is progress, but slow progress, you don’t see victory.”
Elsewhere, in the Asian session, the Reserve Bank of Australia (RBA) Governor Philipe Lowe said that based on incoming data, the RBA board estimates that additional rate increases will be needed “over the months ahead to ensure that inflation returns to target and that this period of high inflation is only temporary.”
“If we don’t get on top of inflation and bring it down in a timely way, the end result will be even higher interest rates and more unemployment in the future,” Lowe said.
Given the backdrop and worse than estimates Australian labor market date revealed on Wednesday, the US Dollar (USD) regained composure and weighed on the Australian dollar. The AUD/USD pair tumbled from around 0.6989 toward the week’s lows at 0.6811.
What to watch?
The Australian economic docket will feature Manufacturing, Services, and Composite PMIs, the Composite Leading Index, and the Wage Price Index. On the US front, the calendar will reveal Q4’s GDP estimates, Initial Jobless Claims, the Fed’s preferred inflation gauge, and the University of Michigan Consumer Sentiment final reading.
AUD/USD Key technical levels
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The AUD/USD currency pair ended the week with losses, though it fluctuated around 0.6877 at the same time. The US dollar strengthened against a basket of currencies and this had a negative impact on the Australian dollar.
The AUD/USD had a bearish day on Friday as the US dollar extended its gains against a basket of currencies due to concerns about rising COVID-19 cases. The US dollar strengthened as a result, causing the AUD/USD to move lower.
The AUD/USD was range-bound during the week, fluctuating around 0.6877. However, it eventually closed the week lower, at 0.6858, down 0.36%.
The pair’s losses were largely influenced by the broader US Dollar strength. The greenback extended its gains, supported by fresh worries about coronavirus pandemic as infections continue to rise in many countries. This risk-averse sentiment was reflected in higher demand for safe-haven currencies, such as the US dollar.
In addition, the Federal Reserve left its key interest rates unchanged, maintaining the policy stimulus which supported the US dollar.
Looking ahead, market participants continue to monitor the coronavirus developments for fresh cues about the direction of the pair. The sentiment of traders will also be influenced by central bankers’ comments. If enough optimism is noted in the near term, then the AUD/USD may stretch its gains. However, if risk-averse sentiment persists, then the greenback may remain strong, resulting in the AUD/USD paying more ground.
