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AUD/USD plunges below 0.6700 on risk aversion/Fed statements

  • The dollar was bolstered by comments from the Federal Reserve.
  • John Williams of the New York Fed expects a rate cut by 2024.
  • Weak Australian retail sales and protests in China weighed on the Australian dollar.
  • AUD/USD Price Analysis: Short-term downtrend, looking at 0.6600.

The Australian dollar (AUD) plunges at the start of the week on hawkish comments from Federal Reserve (Fed) officials, risk aversion spurred by the Covid-19 unrest in China and a weaker-than-expected retail sales report in Australia. Therefore, the US dollar (USD) is appreciating, as the dollar index (DXY) shows. At the time of writing, the AUD/USD is trading at 0.6650, down 1.50% from its opening price.

Federal Reserve Officials Will Keep Raising Rates, Envision Cuts in 2024

Investor sentiment remains negative. Federal Reserve officials said more rate hikes are needed. St. Louise Fed President James Bullard said the Fed should keep raising rates through 2023. He said rates should hit the lower end of the 5-7% rate range, adding that a recession is not inevitable. Echoing some of his comments, New York Fed President John Williams said he expects inflation to fall to 5.0-5.5% by the end of 2022 and to 3.0-3.5% by the end of 2022. 2023, noting that the baseline forecast does not predict a US recession. However, traders should be aware that Williams said the Fed could cut rates in 2024.

Traders should remember that the Federal Reserve’s Open Market Committee (FOMC) minutes from the last meeting indicated that “a substantial majority of participants judged that a slowdown in the rate of increase would likely soon be appropriate,” cementing the moderation of interest rates by the Fed.

China’s Covid-19 unrest and weak Australian retail sales weighed on AUD

Apart from this, protests in China related to Covid-19 lockdowns and mass testing, and fears that if they escalate they could derail the global economy, weighed on investor sentiment. According to Bloomberg, “the protests are shaping up to be one of the biggest threats to the Communist Party since the Tiananmen crackdown in 1989,” keeping investors on edge.

During the Asian session, Australian Retail Sales for October fell 0.2%m/m against estimates for a 0.5% expansion, portraying a more “cautious mood on consumer spending after 9 straight months of rising.” , according to analysts at TD Securities.

“However, sales remain strong on a year-over-year basis, at 12.5% ​​yoy. With interest rates rising rapidly, household budgets are under pressure, and this is starting to show in slower consumer spending “, the TD analysts wrote.

what to expect

An empty Australian economic calendar will leave traders adrift on the dynamics of the US dollar. On the US side, September S&P/Case-Shiller House Prices and November Conference Board (CB) Consumer Confidence will offer a new catalyst for AUD/USD traders.

AUD/USD Price Analysis: Short Term

The AUD/USD 4-hour chart suggests that the sellers are gathering momentum, pushing prices towards the 38.2% fibonacci retracement at 0.6643. Additionally, the Relative Strength Index (RSI) fell into bearish territory, exacerbated by weak Australian economic data and the AUD/USD exchange rate dipping below 0.6700. Therefore, the path of least resistance for the AUD/USD is to the downside.

Therefore, the first support for the AUD/USD would be the 100 Exponential Moving Average (EMA) at 0.6631. A break below will expose the 50% Fibonacci retracement level at 0.6594, followed by the 61.8% Fibonacci level at 0.6546. On the other hand, the first resistance of the AUD/USD would be 0.6700. A breach of the latter will expose the daily pivot turned resistance at 0.6720 S1, followed by the daily pivot at 0.6750.

Source: Fx Street

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