AUD/USD retreats and eyes 0.6400 on Fed hawkish comments, eyes on Powell speech

• Hawkish comments from Federal Reserve officials Patrick Harker and Susan Collins weigh on the pair.
• Weak Australian economic data for August and China’s woes add to the bearish sentiment for the Aussie.
• Market participants await Fed Chair Jay Powell’s speech at Jackson Hole on Friday for further direction.

The Australian Dollar (AUD) erased Wednesday’s gains against the American Dollar (USD) on Thursday, as a ‘bearish-engulfing’ candlestick chart pattern emerges, suggesting that further downside is expected. On Thursday, the hawkish commentary by Fed officials, alongside weaker-than-expected economic data from Australia in August, paints a gloomy economic outlook for the Aussie. The AUD/USD changes hands at 0.6412 after retreating from weekly highs of 0.6488, almost flat as the Asian session starts.

The Aussie Dollar loses ground vs. the US Dollar on the Fed’s restrictive stance

Market participants focus shifts to Fed Chair Jay Powell’s speech at Jackson Hole on Friday. A few Federal Reserve policymakers delivered an intro, which struck the markets with hawkish remarks, though both commented that the Federal Fund Rate (FFR) is about to peak. Patrick Harker from the Philadelphia Fed said rates must remain at current “restrictive” levels while acknowledging the US economy will cool off. In the meantime, Boston Fed President Susan Collins said rates are at a “sufficiently restrictive level” but kept the door open for more increases while pushing rate cuts off the table.

The US economic agenda delivered a mixed report on long-lasting goods, with Durable Goods Orders for July plunging, while core figures were above estimates. At the same time, the US Bureau of Labor Statistics (BLS) showed that Initial Jobless Claims for the week ending August 19 were below forecasts at 230K, with estimates of 239K, portraying the tightness of the labor market.

Given the backdrop, the greenback advanced, as seen by the AUD/USD dropping below the 0.6450 psychological level. In the meantime, the US Dollar Index, a measure of the buck’s value versus six currencies, touched a fresh two-month high at 104.027 but ended Thursday’s session at 103.993, gaining 0.61%.

On the Australian front, August’s data has not been good for the Australian economy, while China’s woes weakened the AUD. Given that employment data was weaker, wages came below the prior month, the economy slashing employment, and an unemployment rate ticking towards 4%, the Reserve Bank of Australia (RBA) is expected to keep rates unchanged at the September meeting. The lack of economic data would keep traders focused on Powell’s speech and next week, RBA’s upcoming Governor Michelle Bullock would speak on August 29.

AUD/USD Price Analysis: Technical outlook

The AUD/USD is set to extend its downtrend after pausing during the first three days of the week. Thursday’s reversal opened the door to test the 0.6400 figure. A clear break will expose the November 10 daily low of 0.6386, ahead of challenging the year-to-date (YTD) low of 0.6264. It should be said that an extension past the YTD low would reinforce the downtrend, with sellers eyeing 0.6300. On the contrary, if buyers want to remain hopeful of higher prices, the pair must stay above 0.6400, with the current week’s high of 0.6488 seen as the first resistance, followed by 0.6500.