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Australian dollar punches above 73 line

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The Australian dollar has posted strong gains for a second straight day. In the European session, AUD/USD is trading at 0.7338, up 0.65% on the day.

We continue to see strong volatility from the Australian dollar. The currency started the week with a tumble of 1.44% but has recouped those gains and then some. AUD/USD rose 1.35% on Tuesday on the coattails of risk-positive developments in China and Ukraine and has posted additional gains today, courtesy of strong Australian employment numbers.

Australia’s employment data outperforms

Australia’s economy created 77.4 thousand new jobs in February, crushing the estimate of 37.0 thousand and above the January reading of 12.9 thousand. The unemployment rate fell from 4.2% to 4.0%, better than the forecast of 4.1%. This is the lowest unemployment rate since 2008. As well, the participation rate rose to 66.4%, up from 66.2% ahead of the estimate of 66.3%. All in all, an impressive performance that points to a robust labour market.

The Chinese government has intervened after the meltdown in the country’s stock markets. Beijing announced on Tuesday it planned to boost the economy through monetary and loan policies which would spur growth. The announcement sent Chinese equity markets higher on Wednesday, with the Hong Kong soaring 9.1%. The news was bullish for the Aussie, as China is Australia’s number one trading partner.

The risk-sensitive Australian dollar also was buoyed by news that Russia-Ukraine peace talks are showing progress. We’ve been down this path before, as markets have risen on reports of a possible ceasefire, only to be disappointed. This time may be different, as the sides are apparently working on a detailed peace plan, which would include a Russian withdrawal of forces from Ukraine and Ukraine declaring neutrality.

Fed raises rates, projects 6 hikes

The Federal Reserve did not surprise anyone with its 0.25% hike, the first rise in rates since 2018. What was more of interest to the markets was the FOMC dot plot, which projected another six rate hikes this year. The dot plot also forecasted that rates would rise to around 3% by the end of 2023, sharply higher than the 1.60% estimate in December. Fed Chair Powell said that a taper of the balance sheet could start as early as May. This double-tightening is a clear indication that the Fed plans to be aggressive in its monetary policy, with the aim of wrestling red-hot inflation back to the Fed target range of 2%-3%.

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AUD/USD Technical

  • 0.7212 is under pressure as support. Below, there is support at 0.7131
  • There is resistance at 0.7327 and 0.7408

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