- AUD/USD is falling due to risk aversion and rising US bond yields supporting the dollar.
- The Fed’s Daly said he would like core prices to come down and sees inflation likely to drop to 3% in 2023.
- US services PMIs were mixed, although the ISM showed the resilience of the US economy.
- The RBA’s 25 basis point rate hike maintains the weight of the Australian dollar.
The AUD/USD falls for the second consecutive day and the dollar chains five days of losses, as risk aversion takes center stage. Speculation that central banks would back off after the Reserve Bank of Australia’s dovish 25 basis point hike faded as Fed policymakers stressed the need to curb inflation. AUD/USD is trading at 0.6482 after hitting a daily high of 0.6526 at the time of writing.
AUD/USD falls on US dollar strength and RBA dovishness
On Wednesday, Fed officials, led by San Francisco Fed President Mary Daly, crossed the wires. She said she would like core prices to “stay flat or come down” and added that inflation would likely end next year at around 3%, rather than 2%. As for the labor market, she said that “if Friday’s data shows that hiring is slowing down, that would be good news.”
Turning to the macro economy, the US docket revealed the ISM services PMI, which remained in expansionary territory at 56.7, above street forecasts but below the previous month’s reading. Meanwhile, although improving, the S&P Global PMI services and composite indices remained below the 50 expansion/contraction line, at 49.3 and 49.5, respectively.
Earlier, ADP national employment data for September showed the economy added 208,000 private jobs to the economy, which could be a prelude to Friday’s US Non-Farm Payrolls report.
At the same time, the US Department of Commerce reported that the US Trade Deficit shrank 4.3% to $67.4 billion in August, the lowest since May 2021.
On the Australian dollar side, the RBA’s decision to hike 25 basis points caught traders off guard, who had been expecting a 50 basis point hike. AUD/USD traders reacted to the decision, sending the main pair sliding towards 0.6465.
RBA Governor Philip Lowe stated that “the cash rate has risen substantially in a short period of time”, adding that the council expects further tightening in the coming period.
Elsewhere, the Dollar Index, which measures the value of the dollar against a basket of pairs, rallied more than 1%, rebounding from 111.00 to 111.480, reflecting rising US bond yields. US Treasury. The interest rate on 10-year US bonds rose almost 15 basis points to 3,779% as market participants began to price in a 75 basis point rate hike at the Fed’s November meeting.
What must be considered
The AIG Construction Index and Trade Balance will be released on the Australian economic docket later in the Asian session on Thursday.
Initial jobless claims will be published on the US economic calendar on Thursday, along with interventions by the Fed, led by Chicago President Charles Evans, Cleveland President Loretta Mester and members of the board of directors Lisa Cook and Christopher Waller.
AUD/USD Key Technical Levels
Source: Fx Street
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