Australian Dollar, Dow Jones at Risk as Fed Officials Stress Tight Policy Ahead

Australian Dollar, AUD/USD, Dow Jones, Hawkish Fedspeak – Asia Pacific Market Open:

Asia-Pacific Market Briefing – Australian Dollar Vulnerable to Risk Aversion

The sentiment-linked Australian Dollar underperformed against its major counterparts over the past 24 hours. It began with a disappointing employment report, where Australia unexpectedly lost jobs in December as unemployment ticked slightly higher. While this may induce less-hawkish Reserve Bank of Australia policy expectations, the labor market remains historically tight.

Risk aversion was the predominant theme overnight as stock exchanges across Asia, Europe and North America saw losses. On Wall Street, the Dow Jones and Nasdaq 100 fell -0.76% and -0.96%, respectively. If losses are held into the end of this week, the -3.6% decline in the Dow Jones will end up being the worst 5-day performance since the middle of September.

Helping drive risk aversion was ongoing hawkish commentary from the Federal Reserve. Fed Vice Chair Lael Brainard said that the central bank needs a ‘sufficiently restrictive’ policy for some time. The market continues to be increasingly at odds with what the central bank is envisioning. Softer US retail sales and PPI data earlier this week was a key culprit.

Heading into Friday‘s Asia-Pacific trading session, New York Fed President John Williams noted that policy has ’more work to do‘ to lower inflation. He added that it is critical they ’stay the course until the job is done. As such, this is leaving markets at risk over the remaining 24 hours. If sentiment continues deteriorating, pushing regional indices like the ASX 200 and Nikkei 225 lower, the Australian Dollar looks increasingly vulnerable.

Australian Dollar Technical Analysis

Looking at the daily chart, AUD/USD rejected resistance at 0.7009 earlier this week as prices turned cautiously lower. Immediate support is a combination of the 0.6893 inflection point as well as the 20-day Simple Moving Average (SMA). Breaking lower exposes the 50-day line towards the 61.8% Fibonacci retracement level at 0.6768.

AUD/USD Daily Chart