The Australian dollar stabilized on Wednesday after a dreadful outing a day earlier. In the European session, AUD/USD trades just below the 0.66 line.
AUD/USD sustained its second most bearish day this year on Wednesday, with a staggering decline of 2.1%. Earlier today, the Australian dollar touched a low of 0.6567, its lowest level in four months. A combination of a dovish rate hike by the Reserve Bank of Australia and hawkish comments from Fed Chair Powell sent the Australian dollar reeling.
The RBA hike of 25 basis points was practically business as usual. Still, investors picked up on the removal of a reference to raising rates “over the months ahead”, a possible signal that the RBA could be near the end of the current rate-tightening cycle. The rate statement explicitly said that inflation had peaked, clearly a dovish signal from policymakers.
Earlier today, Governor Lowe used a second “p” word which weighed on the Australian dollar, saying that a pause in rate increases was closer. Does that mean that the April meeting will be a “one and done”? Perhaps, but Lowe has said previously that the Bank will make its rate decisions on a meeting-by-meeting basis after evaluating the data. This means that the next inflation and employment reports will critically impact what the RBA does at next month’s meeting.
In the US, Fed Chair Powell remained in a hawkish mode in his testimony on Capitol Hill. Powell pointed to the recent strong releases and said the Fed would likely need to raise rates more than anticipated. Powell said that the Fed would evaluate the need to increase the pace of rate hikes based on the “totality of the data”. The remarks caused a huge shift in market pricing, with the likelihood of a 50-bp at the March 22 meeting rising to 70%, up from 25% prior to Powell’s testimony, according to the CME Group (NASDAQ:CME).
AUD/USD Technical
- 0.6565 is a weak support line. Below, there is support at 0.6402
- There is resistance at 0.6626 and 0.6749
