Australian Dollar recovers as market digests Fed meeting

• The Australian Dollar rebounds after Powell refuses to commit to further rate hikes, notes Core CPI is down; labor market strong. 
• The Aussie had lost ground after lower-than-expected Q2 inflation data on Wednesday. 
• The FOMC raised the Fed Funds rate by 0.25% and upgraded its assessment of the US economy from showing “modest” to “moderate” growth.  

The Australian Dollar (AUD) recovers against the US Dollar (USD) on Thursday, after faintly optimistic comments from the Federal Reserve (Fed) Chairman Jerome Powell in the press conference which weighed on the USD. 

The Fed Chair refused to commit to confirming rate hikes in the future, and noted how core inflation had come down whilst the labor market remained resilient. Even though he continued to reiterate that more work needed to be done to get inflation back to target, the market interpreted his overall tone as leaning on the dovish, i.e. suggesting interest rates might fall sooner than previously thought. This weighed on USD, helping AUD/USD rise. 

AUD/USD trades in the upper 0.67s at the start of the US session on Thursday.  

Australian Dollar news and market movers 

• The Australian Dollar rebounds following the Fed meeting. The FOMC raised rates by 0.25% – as expected. However, Chairman Powell showed more-than-expected optimism in his post-meeting press conference.
• Powell noted how core inflation was coming down, how the labor market was showing remarkable resilience, and how the Fed would be taking a meeting-by-meeting approach to policy from now on. The market interpreted this as a dovish turn. 
• The release of Australian Consumer Price Index (CPI) data for Q2 dragged the Aussie lower early Wednesday after it showed a steeper-than-expected slowdown in inflation. 
• Australian CPI inflation came out at 6.0% in Q2 YoY when 6.2% had been forecast versus the 7.0% in Q1. 
• The Reserve Bank of Australia’s (RBA) preferred gauge, RBA Trimmed Mean CPI, measured quarterly, increased by 5.8% YoY in Q2 versus the 6.0% rise estimated and the 6.6% of Q1.
• There is a risk that the RBA will have to cut rates in 2024 because the Australian housing market is dominated by variable-rate mortgages so it is more sensitive to interest rates, and homeowners have recently been adversely affected by higher mortgage repayments, according to Bloomberg Intelligence, as quoted by Financial Review. 
• The RBA’s Cash Rate is 4.1%, which is below the Fed’s 5.50%, overall favoring capital flows to the Greenback versus the Aussie. 
• China’s pledge to increase support for the economy on Monday has helped the Australian Dollar since it is Australia’s largest trading partner. 

Australian Dollar technical analysis 

AUD/USD is in a sideways trend on both the long and medium-term charts. The February high at 0.7158 is a key hurdle, which if vaulted, will alter the outlook to one that is more bullish longer term. 

Likewise, the 0.6458 low established in June is a key level for bears, which if breached decisively, would give the chart a more bearish overtone from a longer-term perspective. 

Australian Dollar vs US Dollar: Weekly Chart

A confluence of support made up of all the major daily simple moving averages (50, 100 and 200) exists in the upper 0.66s and lower 0.67s. This is expected to provide a rigid cordon of support, acting as a barrier to further losses.

The exchange rate has already bounced off the 200-day Simple Moving Average (SMA) at 0.6725 and completed a pivot higher. However, it is not clear if this reversal will extend.  

Australian Dollar vs US Dollar: Daily Chart

A decisive break above the June 16 high at 0.6900 would provide stronger confirmation of a more bullish outlook. 

Likewise, a decisive break below the 200 first and then the 50 and 100-day Simple Moving Averages (SMA) would confirm a continuation of the recent bear move lower to a speculative target at the June and July lows in the mid-0.64s. 

A decisive break consists of a long daily candlestick, which pierces cleanly above or below the critical level in question and then closes near to the high or low of the day. It can also mean three up or down days in a row that break cleanly above or below the level, with the final day closing near its high or low and a decent distance away from the level.