Is 70 the next stop for AUD?

Australian dollar hits 13-month low

It’s down, down, down for the Aussie, which continues to falter and has fallen into 70-territory. AUD/USD has touched a low of 0.7062 earlier today, its lowest level since early November 2020. This November has been a disaster for the currency, which has slumped by 5.70%. The Australian dollar could be headed below the 70 line, which has psychological significance.

Australia releases GDP for the third quarter on Tuesday, a key release which should be treated as a market-mover. The country endured a rough quarter, with extended lockdowns in Sydney and Melbourne hampering economic activity. The consensus stands at -2.7% q/q, but annualized growth is projected at +3.0%.

With the Omicron variant of Covid spreading fast and causing consternation in the financial markets, investors are all ears as Fed Chair Jerome Powell is testifying before a Senate committee. Powell said that Omicron was a risk that was not part of the Fed’s forecasts, and that the Fed would be in a better position to assess its impact in 10 days. Powell acknowledged that inflation risks have increased, and made an about-face, saying that inflation could no longer be labeled as ‘transitory’. He also said that the Fed would discuss speeding up tapering at the December meeting.

Powell’s comments appear to indicate a slight narrowing of the gap between the Fed’s view and market expectations. The markets expect an acceleration of tapering in January, with Goldman Sachs stating in a note last week that it expects a doubling of the trim, from USD 15 billion to 30 billion. The Fed is nowhere near the market pricing of three rate hikes in 2022, but if inflation remains red-hot, we can expect Powell to signal that the Fed is prepared to raise rates next year. The Fed appears to be moving in a hawkish direction, which bodes well for the US dollar.

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AUD/USD Technical

• There are resistance lines at 0.7226 and 0.7331
• AUD/USD is testing support at 0.7065. Below, there is support at 0.7009, which is protecting the symbolic 70 level

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