FX Market Wrap: US Dollar Moves South As Powell Softens Tone

Market Analysis /
29 Nov 2018
  • The USD was lower across the board as risk-sentiment improves on the back of comments by the Federal Reserve Chairman
  • The Australian Dollar tracked higher as the currency followed strong gains on US equities

A more dovish tone from the Fed Chairman today sent the US Dollar south, leading to strong gains by the Euro, Sterling and especially the Aussie Dollar.

Jerome Powell in a speech today indicated that current US rates are “just under” the neutral rate, which contrasts with his comments last month that rates were “a long way” from neutral, with traders taking this to mean that the Federal Reserve won’t be quite as trigger happy as previously perceived when it comes to tightening Monetary Policy in 2019.

With US equities and risk-sentiment on the rise, the Australian Dollar made the most of the upbeat market mood to surge back past the US$0.73 handle. The AUDUSD rate moved over 1% higher against the greenback on the day, and as the chart below indicates, the currency pair is again trading well above its 50, 100 and 200-day moving averages, whilst momentum indicators are also painting a bullish picture.

But while the technical indicators may be looking attractive for the AUDUSD pair, it should be kept in mind that there is the G20 summit just around the corner, and if the market doesn’t like what it hears regarding US-China trade talks, then from a fundamental point of view there is still this event-risk which could see short term gains capped for the pair. Who knows what will happen at the G20, but the AUDUSD reaction will be an interesting one to watch over the next week in terms of which direction risk-sentiment will head.

The EURUSD rate gained 0.75% for the day, with the move higher mostly inspired by the Fed Chairman’s comments on rates and better risk-sentiment reducing the safe-haven appeal of the USD. EURUSD moved to a weekly high of around 1.1387 following the Powell speech, with the chart below indicating bullish but slightly overbought conditions for the pair. The first decent support level comes in at 1.1315, whilst resistance waits at 1.1430.

Meanwhile, the GBPUSD rate also made gains having moved 80 pips higher to sit at 1.2830, while the Kiwi Dollar moved 1.2% higher to 0.6870 on the improved risk-sentiment in the market.

Overall, while it was a down day for the Dollar, it will be interesting to see what reaction there is next month where the consensus expectation is that the FOMC will be raising interest rates for the fourth time in 2018. And a question to keep in mind is this – will Jerome Powell be able to sustain this apparent dovish shift if US economic data on GDP and jobs continues to be strong? Time will tell.

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