Currency pair AUD/USD hit a four-week trough as the dollar was strongly buoyed by the Federal Reserve Chair Janet Yellen’s remarks in the week prior on Friday.
As markets digested Yellen’s speech in Wyoming, the US dollar traded higher against its rival currencies. Greenback climbed 0.13% to $95.60 as of 09:50 GMT, close to Friday’s two-week high of 95.58.
AUD/USD, meanwhile, plunged to its lowest in four weeks—0.21% to 0.7548, and as of writing, has gone to a negative 0.09% to 0.7557.
Yellen’s Remarks, Fed Rate Hike Clues
Fed Chair Janet Yellen cited the odds for US interest rate hikes have “strengthened” in recent months due to progresses in the jobs market and to expectations for firm economic growth.
The annual meeting for global central bankers took place at the Jackson Hole symposium on Friday.
She did not, however, specify when the Fed would act, further stating that higher interest rates will depend on incoming economic data.
(Image by www.silverdoctors.com)
Fed Vice Chair Stanley Fischer spoke shortly following the comments, describing Yellen’s speech as “consistent” with prospects for possibly two more rate hikes this year, sparking bigger hopes for a September hike.
Rate futures pointed to the market pricing in more than a 30% chance of a hike in September, up from 18% before Fed Chair Yellen and her Deputy Fischer’s remarks, according to CME Group's FedWatch tool. December odds rose over 60% from a prior 57%.
Traders said solid figures could see the dollar break out of its recent ranges. "If the payrolls figure is strong, the dollar could move toward a test of the 105 level against the yen," said Mitsuo Imaizumi, chief currency strategist at Daiwa Securities in Tokyo.
Speculators still slashed bets on the dollar for a fourth straight week in the week ended Aug. 23 despite the recent hawkish comments from the US central bank, sinking net dollar-long positions to their lowest since early July.
Worries about the strength of the world’s largest economy linger, and were stressed by Friday's second estimate of US gross domestic product (GDP) that revealed second-quarter growth was somewhat worse than earlier thought.
Analysis & Forecast
In a similar situation in May 27, 2016, AUD/USD hit a steep low of 0.71770 when the dollar pushed higher against the other major currencies despite the release of weak US economic reports, as investors awaited a speech by Yellen scheduled later in that day.
The greenback then strengthened broadly after Yellen announced it would be appropriate for the central bank to raise rates “gradually and cautiously” in the coming months if the economy and the labor market continue to pick up as expected.
Similar remarks as of recent, indeed. The dollar had braced itself for further economic data on the dates following May 27, which had caused barely any changes to its standing and a chance for other currencies, such as the Aussie, to take advantage of the cautious greenback.
We can expect the dollar to continue trading higher against other major currencies for quite some time, more so now since Yellen had confirmed of a strengthened case for US rate hikes, improvement in the labor market and higher chances for a solid economic growth.
As of writing, AUD/USD is visibly trading lower to levels around 0.75556, down 0.08%, and is quite volatile as it lingers between resistance level 0.76105 and support level 0.75218. In Friday’s session, it broke through its previous support level where it had fallen to its position today.
With the fundamentals speaking for themselves, the forex pair is likely to go down.
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