- AUD/USD ended the week with a loss due to a shift in sentiment and speculation about an aggressive Federal Reserve.
- US inflation data helped the dollar recover as yields on US Treasury bonds turned north last week.
- AUD/USD is eyeing a busy Australian and US economic calendar next week.
The Australian dollar (AUD) ended the week lower on a risk-off impulse after hitting a daily high of 0.6884 as Wall Street ended the session with a loss of between 0.26% and 0.58%. An outlier, it ended 0.39% above its opening price. At the time of writing, AUD/USD is trading at 0.6877.
Global stock markets closed lower as investors bet more that the US Federal Reserve (Fed) will tighten policy more than previously expected. Last week his January inflation report for the United States (US), namely the consumer price index (CPI) and producer price index (PPI), was lower than December data but above estimates. In fact, the highlight of the week was his PPI on a monthly basis, surpassing consensus and previous month figures.
On Thursday, Cleveland and St. Louis Fed Presidents Loretta Mester and James Bullard said they were seeing compelling evidence of a 50bps hike in interest rates at their upcoming meeting.
Today, Federal Reserve Board member Michelle Bowman said the U.S. central bank had not finished tightening monetary terms, reiterating that it was “not beating inflation”.Meanwhile, Richmond Governor Thomas Birkin said said it would “need more rate hikes” to bring inflation back to the Fed’s 2% target, said reporters after the event in Rosslyn, Virginia. “I wonder how many things we have to see … What you see is progress, but progress is slow. Victory is not in sight.”
Elsewhere in the Asia session, Reserve Bank of Australia (RBA) Governor Philip Lowe said, based on upcoming data, that the RBA Governing Council “will continue to work to ensure that inflation returns to target in the coming months.” We estimate that additional rate hikes will be needed over the next few years.” This period of high inflation is only temporary. “
“If inflation is not managed and cut in a timely manner, the end result will be higher interest rates and even higher unemployment,” Lowe said.
The US dollar (USD) regained its composure and weighed on the Australian dollar given the backdrop of Wednesday’s worse-than-expected Australian labor market date. The AUD/USD pair fell from around 0.6989 towards the weekly low of 0.6811.
what do you see?
The Australian economic docket includes the Manufacturing, Services, Composite PMI, Composite Leading Index and Wage Price Index. On the US front, the calendar reveals fourth-quarter GDP forecasts, initial unemployment claims, the Federal Reserve’s preferred inflation gauge, and the University of Michigan’s final reading of consumer sentiment.