Australian Dollar Analysis and Talking Points
- Choppy G10 Trade Persists
- Fed at Risk of Disappointing Uber Hawkish Expectations
- AUD Susceptible to a Short Squeeze
Choppy G10 Trade Persists
Yet another choppy week for the Australian Dollar and further emphasising the tug and pull of several narratives that G10 FX has been caught up in. That said, on the domestic front, the outlook is promising for the Aussie, the latest jobs report will make the case harder to argue for the RBA to pushback on rising speculation over rate hikes this year. The unemployment rate fell to the 4.2% and hitting the lowest level since pre-GFC, a level not expected by the RBA until 2023. However, with risk appetite under pressure, the domestic story will take a back seat for the time being.
Source: Refinitiv, DailyFX
Fed at Risk of Disappointing Uber Hawkish Expectations
Looking ahead to next week, the key focus for the Aussie will be the upcoming Federal Reserve meeting and given how markets have repriced Fed policy on the uber hawkish side, the risk lies with the Fed failing to match those hawkish expectations set. As such, on the back of a hawkish disappointment, which is where I am leaning towards, the Aussie would likely outperform (keep in mind, CFTC positioning shows the largest short in the Aussie.). That is not to say the Fed will not be hawkish, because they will. However, it is a play on the fact that with markets priced (as also shown in investment bank forecasts) for rate lift-off in March and four hikes this year with the addition quantitative tightening, I struggle to see how the Fed can be more hawkish than that. Not to mention that with risk appetite notable weaker in the lead up to the Fed meeting, Powell will be cautious in overdoing the hawkish rhetoric.
Fed Call for 2022
AUD Susceptible to a Short Squeeze
Source: CFTC, Refinitiv, DailyFX
Taking a look at the chart, rising trendline support has held thus far, however, should the pair close below, this could mark the signal of a deeper pullback towards 0.7100. Meanwhile, on the topside, resistance is situated at 0.7300.
AUD/USD Chart: Daily Time Frame