Australian dollar at 4-week low

The Australian dollar has steadied in the Thursday session. Currently, AUD/USD is trading at 0.7188, up 0.19% on the day.

Building Permits jumps

The Australian dollar is coming off a nasty slide of 1.5% since Tuesday, but has stabilized after some decent Australian numbers. Building Permits jumped 6.8% MoM in August, ending a four-month decline. Private Sector Credit rose 0.6% MoM. As well, the NSW Premier’s announcement that it will ease restrictions on vaccinated persons earlier than expected has improved sentiment towards the Australian dollar.

Still, economic growth has been dented by the prolonged Covid lockdowns, and this was reflected in Retail Sales for August, which declined 1.7% MoM, a fifth consecutive decline. It’s widely expected that GDP for the third quarter will show negative growth, which would be bad news for the Aussie.

With the financial markets pricing in a Fed taper, most likely in December, the US dollar has made strong inroads against the major currencies. The dollar index is at 94.47, a shade below its 52-week high of 94.50, and 10-year Treasury yields are at their highest levels since June. These moves reflect the rapidly growing view that higher inflation is here to stay, at least for some time.

Fed Chair Powell grudgingly acknowledged this in his congressional testimony earlier this week, stating that high inflation could last longer than anticipated. It seems clear that Powell will have to tighten policy in order to prevent inflation rising even further, which could overheat the economy. This week, Fed President Bullard said that the Fed might need two rate hikes in 2022 in order to combat inflation, and other members have urged the Fed to start tapering shortly. If we hear additional hawkish comments from Fed members in the coming days and weeks, the US dollar should continue to head to higher ground.

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AUD/USD Technical

• 0.7215 is under pressure in resistance. Next, there is resistance at 0.7266
• The pair has support at 0.7170.  Below, there is support at 0.7119

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