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Aussie Tumbles after Hawkish Powell

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The Australian dollar has started the week in negative territory, extending the sharp losses seen on Friday. In the European session, AUD/USD is trading at 0.6849, down 0.63%.

US dollar flies after Powell’s rate remarks

The US dollar ended the week on a high note, courtesy of Fed Chair’s hawkish speech at the Jackson Hole Symposium on Friday. Powell’s message didn’t veer from what the Fed has been telegraphing the markets for weeks, but this time around investors internalized the message, which sent the equity markets reeling before the weekend. Powell stated that the Fed would continue to use all its tools to fight inflation, acknowledging that high interest rates would remain for some time, and the Fed would be careful not to ease policy prematurely. Significantly, Powell said that the Fed would not change policy based on one or two reports of lower inflation. This statement could well have been a response to the market euphoria about a Fed U-turn in policy after July’s inflation dropped unexpectedly.

Powell’s speech was unusually brief, which may have been an attempt to prevent investors from looking for some dovish remarks in the speech and ignoring Powell’s message. The concise speech left no room for ambiguity – the Fed will continue to raise rates until it’s convinced that inflation has peaked and is on the decline.

In Australia, retail sales bounced back in July with a strong 1.3% gain, blowing past the estimate of 0.3% and above the 0.2% reading in June. The reading hasn’t helped the Aussie any, as investors continue to digest Powell’s speech at Jackson Hole. The RBA meets next week, and the rebound in retail sales will make it easier for the central bank to remain aggressive and deliver a 50 basis point hike for a fourth straight time.

AUD/USD Technical

  • There is resistance at 0.6919, followed by a monthly resistance line at 0.6983
  • 0.6830 is a weak support line. Below, there is support at 0.6766

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