SYDNEY: The Australian dollar rallied to an eight-month high on Thursday after the Federal Reserve Chair Powell struck a dovish tone by noting that inflation was easing in the US economy, igniting a risk-on rally across markets.
The Aussie was at $0.7158, highest since $0.7283 hit in early June, which is also the next major bull target level. It surged 1.2% a day earlier, breaking past a key resistance level of $0.7136.
Support now lies at the 14-day moving average of $0.7039. The kiwi was hovering at $0.6523, having also jumped 1.1% overnight. It now faces resistance at the seven-month high of $0.6530 touched in January, while enjoying support at around $0.6420.
Fed Chair Jerome Powell, speaking in a news conference after the central bank hiked rates by a widely expected 25 basis points, referred repeatedly to the “disinflationary” process that now appeared to be underway, suggesting the fight against high inflation has turned a key corner.
Australian dollar sideswiped by dire data, still up on month
However, policymakers also projected “ongoing increases” in borrowing costs would be needed. Futures markets favour another 25 basis point hike during March policy meeting, while implying that might be the end of the current tightening cycle from the Fed. They also priced in two rate cuts by the end of this year.
“To conclude, there was some encouragement for the market’s expectation that the easing cycle could come this year, with Chair Powell recognising that, if inflation fell significantly faster than the FOMC currently expect, the case for an earlier easing was credible,” said Elliot Clarke, an economist at Westpac.
US stocks, modestly lower ahead of the Fed rate decision, turned sharply higher as Powell spoke, bonds rallied, and US dollar slid 1% against a basket of major currencies to the lowest since April last year.
Cameron McCormack, portfolio manager at VanEck, expects the Aussie dollar would likely receive another boost from further tightening from the Reserve Bank of Australia next Tuesday as it seeks to contain surging inflation, which has yet to show any signs of easing.
“We anticipate this increase and two further rate hikes will likely support the Australian dollar going forward, particularly against central banks that are about to end their hiking cycles.”
Australian government bonds tracked overseas counterparts higher. The yield on three-year government bonds fell 7 basis points to 3.112%, while the yield on ten-year notes dropped 2 basis points to 3.496%.
Comments
Comments are closed.