- AUD/USD is posting minimal gains amid a boost in risk appetite.
- Fed officials will continue to hike rates amid mixed economic data being reported from the US.
AUD/USD advances in the North American session, although below its daily maximum reached in the last hours of the London session, at 0.6356, amid the aggressive Fed comments and a boost in risk appetite, which kept the dollar under pressure, as the US dollar index (DXY) shows. At the time of writing, the AUD/USD is trading at 0.6276, up 0.13%.
Thursday. Fed officials continue to express concern about high inflation in the United States. Given the scenario that the CPI reaches 8% in September and the labor market is tight, Patrick Harker, of the Philadelphia Fed, and Lisa Cook, a member of the Fed council, commented that the Fed would have to continue raising rates . Harker commented that he is “disappointed by the lack of progress in reducing inflation”, while adding that he expects rates to be above 4% in 2023.
Aside from this, a series of US economic data gave mixed signals to market participants, as the Fed is up 300 basis points on the year. The US Department of Labor reported that jobless claims rose by just 214,000 last week, less than estimated, reflecting the resilience of the labor market. Meanwhile, US Existing Home Sales fell for the eighth consecutive month as higher mortgage rates of around 7%, triggered by the Fed’s monetary stance, had cooled the housing market.
Apart from this, Australia’s employment data for September disappointed as the economy only added 900 workers to the economy, well below the estimated 25,000, and lagged behind August’s jump of 36,000. The lack of employment data in Australia justified the Reserve Bank of Australia’s (RBA) tiny rate hike in early October as the RBA slowed its rate of adjustment. In the same report, the Unemployment Rate remained at 3.5%.
Against this background, the Fed’s tightening cycle will leave the dollar in the lead against the Australian dollar. Money market futures see the Federal Funds Rate (FFR) peaking at 5%, while the RBA Overnight Cash Rate (OCR) will hit 4%. Therefore, the interest rate spread, and the safe-haven status of the US dollar, will keep AUD/USD under pressure.
AUD/USD Price Forecast
AUD/USD’s downtrend remains intact, despite jumping off daily lows. It is worth noting that AUD/USD posted new weekly all-time highs around 0.6356, but the Fed’s aggressive cut comments and rising US bond yields were headwinds for AUD/USD. However, with the Relative Strength Index (RSI) making higher lows, contrary to the AUD/USD price action, a positive divergence emerged, sparking earlier gains. Unless buyers prevent the major from posting a negative day, a retest of the 0.6300 figure is expected.
Source: Fx Street
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