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The Australian Dollar is down sharply on Friday after hawkish comments from European and U.S. policymakers spooked global equity markets and dampened demand for riskier assets.
The Aussie began to retreat from a one-week high late Thursday after ECB vice-president Luis de Guindos said rates could be hiked as early as July, sending EU bond yields sharply higher. Meanwhile, Federal Reserve officials were confirming the likelihood of a 50-basis point rise in May and possibly moving by 75 basis points if needed.
Futures now imply rates would reach 2.00-2.25% as early as July and climb to around 3% by year end.
At 07:29 GMT, the AUD/USD is trading .7310, down 0.0061 or -0.83%. On Thursday, the Invesco CurrencyShares Australian Dollar Trust ETF (FXA) settled at $73.80, down $0.09 or -0.13%.
The Fed’s hawkishness spilled over into local markets which narrowed the odds the Reserve Bank of Australia (RBA) could lift its 0.1% cash rate in May, rather than June as most expect, Reuters said.
They also implied a better-than-even chance of a half-point hike in June and rates reaching around 2.25% by Christmas.
Essentially, the Fed is on course to raise rates by at least 50 basis points in May, even before the RBA starts lifting its official rate. Therefore, the advantage is to the U.S. Dollar.
Daily Swing Chart Technical Analysis
The main trend is down according to the daily swing chart. The trend was reaffirmed earlier today when sellers took out the last swing bottom at .7343. A move through .7458 will change the main trend to up.
The short-term range is .7165 to .7661. The AUD/USD is currently trading on the weak side of its retracement zone at .7355 to .7413, making it resistance.
Additional resistance is the long-term retracement zone at .7429 to .7538.
Daily Swing Chart Technical Forecast
The direction of the AUD/USD on Friday is likely to be determined by trader reaction to .7355.
Bearish Scenario
A sustained move under .7355 will indicate the presence of sellers. If this move continues to generate enough downside momentum, we could see an acceleration to the downside or a near-term grind into the March 15 main bottom at .7165.
Bullish Scenario
A sustained move over .7355 will signal the presence of buyers. If this move creates enough upside momentum then look for the short-covering rally to possibly extend into a pair of 50% levels at .7413 and .7429. This is the last potential resistance before the .7458 main top.
For a look at all of today’s economic events, check out our economic calendar.
This article was originally posted on FX Empire