AUSTRALIAN DOLLAR FUNDAMENTAL FORECAST: BULLISH

• Australian Dollar resumes dominant uptrend against US Dollar
• Rising longer-term Treasury yields may slow the Aussie’s push
• Fed Chair Jerome Powell may be asked on bond developments

The growth-linked Australian Dollar extended gains this past week, with its most notable advance having occurred on Friday. AUD/USD’s gain tracked improving market sentiment as S&P 500 futures climbed before the Wall Street trading session, weakening the haven-linked US Dollar. But, sentiment soured during the main session, pausing the Aussie’s advance.

In the week ahead, the Australian economic data docket is fairly light. The most notable events will be private capital expenditures for the fourth quarter and private sector credit for January. While these will offer further insight into the health of Australia’s economy, the sentiment-linked nature of the Aussie will likely keep it focused on external developments and broader fundamental themes.

A lot of attention has lately been on rising longer-term Treasury yields from the world’s largest economy. A combination of vaccine rollouts, fiscal stimulus expectations and loose monetary policy have been fueling growth bets in the long run. This is also consequentially bringing up CPI estimates, with the 10-year breakeven rate sitting around 2018 highs. The latter is a market-based gauge of inflation.

Eyes are on US conference board consumer confidence, durable goods orders and the second revision to fourth-quarter GDP. These will offer further insight into the health of the economy. Rosy outcomes may continue fueling growth recovery expectations. While the Aussie could yet benefit from such outcomes, rising Treasury rates may also work to slow weakness in the US Dollar.

Fed Chair Jerome Powell will also be speaking at the central bank’s semi-annual monetary policy report to the Senate Banking Committee. He will also be testifying before the Congress House Committee on Financial Services regarding the economy and monetary policy. He may receive questions about developments in longer-term fixed-income assets, with the central bank’s focus mainly geared towards front-end bonds.

Check out the DailyFX Economic Calendar for the latest updates on some these events

AUSTRALIAN DOLLAR INDEX VERSUS TREASURY YIELDS, WALL STREET AND US DOLLAR INDEX – DAILY CHART

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