Aussie slides on Fed hawkishness

The Australian dollar is sharply lower on Thursday. In North American trade, AUD/USD is trading at 0.6755, down 1.58%.

Australian employment shines

Australia’s robust labour market continues to impress, with a stellar performance in November. The economy created 64,000 new jobs, above the October reading of 32,000 and blowing away the consensus of 19,000. The unemployment rate was unchanged at 3.4%.

There was more good news as the Melbourne Institute’s Inflation Expectations fell to 5.2%, down from 6.0% previously and below the consensus of 5.7%. The reading has been overshadowed by the employment report and the Fed rate meeting, but is an indication that stubborn inflation is falling. The Reserve Bank of Australia doesn’t meet until February and a lot can happen until then, but as things stand now, we can expect a fourth straight hike of 25 basis points at the next meeting.

The Federal Reserve has been talking hawkish for months, but the markets haven’t been listening all that well. Soft inflation reports and a better-than expected nonfarm payrolls had the markets convinced that the Fed was poised to wind up its current rate cycle, which sent equities higher and the US dollar sharply lower. Investors were subject to a cold shower on Wednesday as the Fed sounded much more hawkish than the markets had anticipated. Policy makers shrugged off the recent declines in inflation, instead focusing on strong job gains and the high level of inflation. The Fed plans to maintain a restrictive policy into 2023 in order to continue the battle with inflation, and it’s clear that the current tightening cycle will continue for some time. The hawkish performance sent risk apprehension higher and boosted the US dollar.

AUD/USD Technical

• AUD/USD is testing support at 0.6772. The next support level is at 0.6693
• There is resistance at 0.6875 and 0.6954

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