AUD/USD Heads Towards a Negative Weekly Start to the Year

Hawkish Fed

The US Federal Reserve had announced the acceleration of its QE tapering in December and the dot-plot had pointed to three rate hikes in 2022, with markets aggressively pricing the first rate increase as early as March.

Wednesday's minutes of that meeting were also hawkish, since they revealed that "Almost all participants agreed that it would likely be appropriate to initiate balance sheet runoff at some point after the first increase in the target range for the federal funds rate." [1]

Overnight, Fed of St. Louis president, mr Bullard (hawk and voter this year) carried the hawkish message home, seeing rate hikes as early as March and also commenting that "the FOMC could also elect to allow passive balance sheet runoff in order to reduce monetary accommodation at an appropriate pace". [2]

The Reserve Bank of Australia on the other hand, has been on the dovish side of the spectrum, as it still runs an asset purchase program and its governor has repeatedly pushed back against calls for rate hikes.

AUD/USD Weighed

Monetary policy is unfavorable for the pair, which also seems to be weighed by today's new Covid-19 restrictions in Australia's most populous state - New South Wales. [3]

AUD/USD sheds more than 1.5% on the week, moving towards a poor start to the new year. The European session brings fresh pressure and a retest of mid-0.7100, which makes its vulnerable to 0.7100, although 0.7061-52 seems distant.

On the other hand, the Relative Strength Index (RSI) points towards oversold conditions. This could give the Aussie the opportunity to react towards the EMA200 (at around 0.7210), but a catalyst would be needed for a break above it that would ease downward pressure and bring December's highs in the spotlight (0.7278).


Past Performance: Past Performance is not an indicator of future results.

The next leg of the move will likely be determined by the US Jobs report, due at 13:30 GMT, which can also create volatility. The economy is forecasted to have added 400K jobs in December, following November's disappointing figures

Nikos Tzabouras

Senior Market Specialist

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

References

1

Retrieved 07 Jan 2022 https://www.federalreserve.gov/monetarypolicy/files/fomcminutes20211215.pdf

2

Retrieved 07 Jan 2022 https://www.stlouisfed.org/news-releases/2022/01/06/bullard-discusses-initial-response-inflation-shock

3

Retrieved 30 Sep 2022 https://www.nsw.gov.au/media-releases/support-measures-for-hospitals-community

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