AUD/USD tumbles below 0.6450 amid buoyant US dollar

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  • AUD/USD stumbles below 0.6500, set to finish the week at around the mid 0.6400-0.6500 range.
  • US Core PCE exceeded estimations, opening the door for further Fed tightening.
  • Fed’s Brainard and Daly reiterated that further hikes are expected and commented that the FFR peak is unknown today.
  • Strong resistance around the 0.6468-87 area might cap any AUD/USD rallies.

The AUD/USD drops in the North American session as market sentiment improved, portrayed by US equities advancing, amid Fed officials crossing wires reiterating the need for higher rates after the Fed’s gauge of inflation for August surprisingly jumped.

At the time of writing, the AUD/USD is trading at 0.6445 below its opening price by 0.83%, after hitting a daily high of 0.6523 earlier during the European session.

The US Federal Reserve’s favorite measure of inflation, known as the PCE, jumped more than estimated, rising 0.3% MoM on August, 6.2% YoY, while core PCE, which strips volatile items, accelerated at a 0.6% MoM pace, up 4.9% YoY, the US Commerce Department said.

Therefore, given that unemployment claims for the last week edged lower and inflation keeps heading north, it cements the case for further tightening by the Federal Reserve. Meanwhile, money market futures see a 68% chance of the Fed hiking 75 bps at the November meeting, up from 61% before the US inflation report.

Later, the Fed’s Vice-Chair Lael Brainard said that the Fed needs to keep interest rates elevated for quite some time as part of the central bank’s effort to bring inflation towards the 2% goal. Brainard added that It’s too early to declare victory over inflation, said that they (Fed) would note pull back prematurely, and commented that the Federal funds rate (FFR) peak is not clear now.

Echoing her comments, the San Francisco Fed’s Mary Daly said that in inevitable to keep raising rates and emphasized that the Fed is “resolute” in its mission to bring inflation down.

Elsewhere, the University of Michigan Consumer Confidence Final reading came at 58.6, lower than previously reported. However, inflation expectations for one year jumped to 4.7% from 4.6%, while for five years, it decelerated to 2.7% from 2.8% previously.

On the Australian dollar side, China’s PMI was mixed, with the official report remaining in expansionary territory. Contrarily, the Caixin Manufacturing PMI missed expectations, in contractionary territory, blamed on Covid-19 containment measures.

AUD/USD Technical Analysis

The AUD/USD dropped from around weekly highs to around 0.6500, extending its losses, though it is headed to end the week near the mid-part of the weekly range. Nevertheless, it should be noted that the RSI is again pointing south, suggesting that sellers are gathering momentum. Short term, the AUD/USD one-hour scale might cap any rallies around the 0.6468-87 area, busy with the 100, 50, and 20-EMAs confluence around that region, further reinforced by the daily pivot point. Therefore, AUD/USD is bearish biased.

AUD/USD Key Technical Levels