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The US Dollar is trading higher today on the back of keenly awaited comments from Fed chairman Powell yesterday. Powell warned that it was too early for the Fed to say that peak rates are in place with the central bank “not confident” that it has yet done enough to bring inflation back to its 2% target. Speaking at an IMF event, Powell warned that the Fed stands ready to tighten further if warranted, keeping the door firmly open to further hikes.
 

Upside Inflation Risks

These comments were echoed by St Louis Fed president Kathleen O’Neill Paese who warned that upside inflation risks still remain. On the back of these comments yesterday, the market has upped its pricing for a further Fed hike by January to around 25% from around 15% prior. Incoming data ahead of the next FOMC will now be crucial to observe. If inflation is seen stalling around current levels or moving higher, this should drive near-term rate-hike expectations higher, lifting USD. However, if inflation is seen to keep falling with momentum, this will likely pour cold water on the prospect of a further hike by year-end, fuelling some unwinding of USD longs.
 

AUDUSD Bear Views

AUDUSD is a good vehicle for USD longs currently. With the market’s dovish interpretation of the last RBA meeting (no further hikes seen), AUD has come under heavy selling pressure. If the hawkish Fed narrative gathers momentum, AUD should come under further pressure near-term.
 

Technical Views

AUDUSD

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The failure at the .6520 has seen the market turning sharply lower. The focus is now on a test of the recent range lows at the .6275 level. This will be a key area to watch with a break here opening the way for a deeper move towards .6195 and .7078 thereafter, In line with falling momentum studies readings. 

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