AUD: Threat of intervention, USD/JPY watch as new week begins, and Australian Dollar at Risk

Oct 17, 2022
VOT Research Desk

Market Analytics and Considerations

US INFLATION EXPECTATIONS, AUD/USD, US DOLLAR, and USD/JPY

• Risk to the Australian Dollar following Friday’s Wall Street turbulence
• Increasing US inflation predictions makes room for more aggressive policies Fed
• Economic agenda for Asia-Pacific light; keep an eye on USD/JPY for action 

After Wall Street experienced volatility on Friday, it’s possible that the beginning of the new trading week in Asia-Pacific markets will be negative. While the S&P 500 fell 2.29 percent, the tech-heavy Nasdaq100 lost more than 3%.As AUD/USD fell 1.62 percent, risk aversion weighed on the sentiment-sensitive Australian Dollar. The New Zealand dollar, which behaved similarly, suffered the same fate.

The markets initially expressed some optimism regarding US retail sales that were lower than anticipated. However, when data from the University of Michigan  (UofM) crossed the wires a few hours later, this quickly changed course. Consumer expectations for inflation in the next year rose to 5.1%, up from 4.6%.The Federal Reserve probably faces a problem like that.

On Thursday, the US CPI data surpassed all estimates just a day earlier. Along with the data from the University of Michigan, that report demonstrates that inflation expectations may drift away from the Fed’s long-term goal. This can lead to a never-ending cycle in which consumers act in their best interests to either protect their wages or look for jobs with higher pay because they do not believe inflation will fall.

Businesses face similar challenges as a result, with rising operating costs likely to result in price increases. A look at the 2-year Treasury yield reveals that the rate has risen past 4.5 percent as traders have priced in a Fed that is going to be more hawkish and will need to work harder to fight inflation. The dollar strengthened. As tightening woes dimmed global growth prospects, crude oil prices that were linked to growth declined. Gold lost value.

The Asia-Pacific docket on Monday is rather light, so traders will be focusing on general sentiment. The ASX 200 in Australia and the Nikkei 225 in Japan run the risk of following Wall Street’s lead. The risk-sensitive AUD/USD pair is at risk. Pay close attention to USD/JPY. Despite government efforts to intervene several weeks ago, the pair reached its highest level in 32 years. The Yen would most likely move in response to further action.

Technical Assessment

The closing price of AUD/USD was the lowest it had been since April 2020, when it was at 0.5980.Prices also closed below the 0.6206 level of the 61.8% Fibonacci extension, but there is no confirmation. The 78.6% level at 0.6113 is the focus of further losses. Positive RSI divergence indicates that the downside is losing momentum. When the price moves higher, the 20-day Simple Moving Average (SMA) comes into focus.

Moving Averages (Daily) Oct 17