Australian dollar falls versus US dollar as markets prep for Fed action; natural gas markets see volatility surge after US terminal incident and AUD/USD approaches critical point of resistance near May low.
Wednesday’s Asia-Pacific outlook
The Australian dollar tumbled again versus the US dollar overnight as Federal Reserve rate hike bets for a 75-basis-point move solidified. Feds funds futures and overnight index swaps are showing nearly a 100% chance that the jumbo rate hike to occur tonight when the FOMC announcement is due to cross the wires. The aggressive action would likely increase the chance for a global recession, which was perhaps the main driver of risk aversion.
Australia’s Westpac consumer confidence index for June is due out this morning, which may provide a catalyst to halting the Aussie dollar’s fall. A move lower from May’s 90.4 print may spur additional weakness, however. Thursday’s employment data will provide the biggest risk driver for the Australian dollar later this week. Analysts expect to see 25k jobs added in May, according to a Bloomberg survey. Last night, Reserve Bank of Australia Governor Philip Lowe signaled the need for additional rate hikes to bring inflation down.
The US dollar continues to reign supreme over its major peers despite an increasingly hawkish tone across global central banks. As recession odds increase, so does the demand for safe havens like the US dollar. There is a chance for a relief rally in risk-sensitive currencies, however, given the Greenback’s unabated ascent over the past several weeks. The FOMC may provide a trigger for that move if Mr. Powell’s statement comes off less hawkish than markets expect.
Oil prices are moving lower into early Asia-Pacific trading, weighed down by recessionary fears and the recent revival of strict Covid-19 restrictions across Chinese cities. European natural gas prices spiked this morning, while US prices fell on news that a liquefied natural gas (LNF) terminal in Texas will be offline for months following an incident at the facility. That will reduce US capacity to export natural gas.
AUD/USD technical forecast
AUD/USD prices fell to the lowest levels traded at since May 12. A trendline from the October 2021 swing high may underpin prices for now, but a drop below that level could see prices take out the May swing low. MACD and RSI are both tracking below their respective midpoints.
AUD/USD daily chart
Thomas Westwater | Analyst, DailyFX, New York City
15 June 2022
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