AUD/USD 30 minutes
Market sentiment continues to improve as traders digest yesterday’s FOMC decision.
The initial reaction was to sell the dollar and buy risky assets, but this was overwhelmed last night by a curious series of sell-offs. This pressure has slowly eased and AUD/USD is now near the week’s highs and the Nasdaq is up 1.6%.
It’s cliché, but the next step will be non-farm payrolls. Powell was as explicit as he could be when asked what it would take to cut rates and said it would take more than “a few” increases in unemployment to move in that direction . Right now the unemployment rate is 3.8%, so I would imagine discussions would start at 4.0% or 4.1%.
Obviously, this would mean failure on Friday, but any step in this direction would attract market attention and vice versa.
More generally, the position in favor of fixed or lower rates is clear since Powell has said hikes are unlikely and emphasized this repeatedly.
On the other hand, talk of a rate hike in Australia has intensified. Now, I don’t think that’s the case today, as the CAD and NZD are also strong (but not as strong as the AUD). China is certainly a priority, as stocks there are having their best day of the year. Very few people have touted the upside risks of the Chinese economy, but if you believe it, then the Australian dollar is in a great position.
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