AUD/USD struggles to hold its ground after the kneejerk reaction to the Federal Reserve rate decision, and the exchange rate may track the negative slope in the 50-Day SMA (0.6539) following failure to test the October high (0.6547).
AUD/USD trades to a fresh weekly low (0.6344) as the Federal Open Market Committee (FOMC) retains hawkish forward guidance, and it seems as though the central bank will maintain its approach in combating inflation as the committee acknowledges that “incoming data since our last meeting suggest that the ultimate level of interest rates will be higher than previously expected.”
As a result, the USD may continue to beat its Australian counterpart as Chairman Jerome Powell emphasizes that “it is very premature” to stay the hiking cycle, and the US Non-Farm Payrolls (NFP) report may provide the FOMC with greater scope to pursue a highly restrictive policy as the update is anticipated to show a robust labor market.
The US economy is anticipated to add 200K jobs in October after the 263K expansion the month prior, and a positive development may fuel speculation for another 75bp rate hike as Chairman Powell warns that “there’s no sense that inflation is coming down.”
In turn, AUD/USD may experience headwinds throughout the remainder of the year as the Reserve Bank of Australia (RBA) shows little interest in carrying out a restrictive policy, and the renewed weakness in the exchange rate may fuel the tilt in retail sentiment like the behavior seen earlier this year.