Top Story

AUD/USD: Will hawkish Yellen finally knock down the Aussie?

What doesn’t kill you makes you stronger: US stocks hit new record high levels despite the Fed Chair Janet Yellen sounding rather hawkish in her testimony to the Senate Banking Committee today. As you would expect, the dollar strengthened across the board. The USD/JPY jumped well north of 114.00 while EUR/USD slumped below 1.06 and buck-denominated gold and copper both turned negative. However, the GBP/USD, which was already lower because of the slightly weaker-than-expected UK inflation figures, didn’t move much further lower, though it was trading near the day’s low at the time of this writing.  

Yellen said that waiting too long to remove accommodation would be “unwise” because the FOMC may be forced to eventually tighten monetary policy more rapidly, which could risk disrupt financial markets and push the economy into recession. She added that the FOMC will continue to hike rates as long as the economy “continues to show signs of strengthening” and that all meetings are live. Her comments suggests that the Fed will hike interest rates more frequently than expected – perhaps three times this year rather two that was previously expected.

The latest US consumer price inflation and retail sales data will be released tomorrow. If these figures show “signs of strengthening” then this will further boost the prospects of an earlier-than-expected rate hike and potentially cause the dollar to rise further.

AUD/USD could be the next domino to fall

Up until now, the Aussie has been very resilient against the US dollar. Yellen’s comments caused it to turn lower on the day. As a result, it has once again failed to break through the lower end of 0.7690-0.7745 resistance range where it had struggled previously as well. However so far, it hasn’t reached the key 0.7600/10 support area. While above here, the bias remains bullish. But if and when this level breaks we could then see the unwinding of the long positions that have been accumulated since the end of last year when the Aussie started to ascend.  As a result, the AUD/USD could fall back to the next support around the 0.7500/20 area before deciding on its next move, which could very well be to the downside. 

Source: eSignal and FOREX.com.

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

The markets are moving. Stop missing out.

OPEN AN ACCOUNT