AUD/USD Deep Dive: Will Fed Tapering Push Price Lower?

Technical Outlook:

Price has been in an overall pretty strong uptrend for the most part over the last year, we're only seeing some retracement now from the strong ascending channel. 0.70 is a key horizontal level that has been jumping between support or resistance since 2018. If we do see a change in trend, this is an important level to look out for where we could see price consolidate around.

0.756 is a key shorter-term horizontal level which was a clear level of support during the ascending channel, and now that price has broken out of this chart pattern, is seen as clear resistance in July and now last week.

Price has formed this intraday ascending channel, and we recently saw price reach the top, make a couple of rejections and is now on its way to continue the trend and head towards the next higher low and the channel's bottom around 0.727. I expect price to make this move and continue this trend.

Retail Sentiment:

Looking at retail sentiment, it's pretty mixed as there isn't a clear winner with one action being over 60%, however, most traders are somewhat bearish on this market. There isn't a huge difference in volume either so it's not very likely we'll see financial institutions manipulate this market. Most traders are looking to catch the trend continuation back down towards the bottom of the ascending channel it looks like.

Upcoming News:

We're seeing many macroeconomic data to look out for, a lot more affecting the USD rather than AUD, therefore the price of AUDUSD will most likely be affected by what's going on with the dollar, positive USD news will push AU lower and negative news will push AU higher.

The US central bank is going to have a monetary policy meeting on Wednesday. Back in September, chief Jerome Powell anticipated that they could begin a gradual tapering process at their next summit, with the Minutes of the meeting indicating the central bank would probably start by cutting $10B/month in Treasuries and $5B/month in mortgage-backed securities.

On Wednesday, the USD will publish the ADP survey on private job creation, while by the end of the week, the country will unveil the October NFP report. Following the terrible September headline number of 194K, the country is expected to have added 455k new job positions, dropping the unemployment rate by 0.1% to 4.7%.

Fundamental Outlook:

RBA Governor Philip Lowe was somewhat vague on when the RBA would raise rates, saying that the bank would be “patient” and wait until economic conditions were suitable for a rate hike. Lowe has said on numerous occasions that the bank would not raise rates prior to 2024, but the markets have been much more hawkish, given the country’s strong recovery and high inflation. The markets have been aggressive in pricing in a series of rate hikes, with the cash rate projected to rise to around 1.5% by the end of next year. Unless growth and inflation drastically decrease, a strong case can be made for Lowe having to accelerate forward guidance to 2023. If Lowe insists on the 2024 timeline, the Australian dollar could face further headwinds.

Looking at the US economy overall, we're expecting to see a bullish USD as the Fed is expected for a rate hike as inflation is going to be higher for longer and the Fed will take advantage of this, to normalise rates by as many as 2 or 3 rate hikes in the next 15 months. This should be dollar supportive, especially considering conditions elsewhere and other central banks offering less clarity. Additionally, as mentioned earlier with the FOMC meeting on Wednesday, the Fed is closer to begin tapering, bond yields may finally start moving higher, along with US dollar strength.