The Australian Dollar made 3 consecutive days of small gains over the last 3 trading days of the week but could not recover the losses made on Monday and Tuesday to further slip against the US Dollar, falling by 2.74% to 0.6194. Inflation figures in the US were released on Wednesday, with the headline figure coming in at double the economist’s expectations, up 0.4% over the previous month and 8.2% over the previous year. With the higher-than-expected inflation figures coming through, US 10-year bond yields soared alongside the US dollar, passing 4%. With these figures, currency traders are likely pricing in a more aggressive move by the Fed in the next meeting as their inflation rate has stayed persistent despite the previous rate hikes. Therefore, it remains to be seen what the relative interest rate differential between the two countries is but it is likely that the US Dollar will be strong against most currencies, including the Australian Dollar.
The Euro closed relatively flat against the greenback, consolidating at around 98 US cents. The Euro made a small recovery against the US dollar above 97.5 cents after the US announced its inflation figures but remains bearish against the Dollar over the medium term. With seemingly no end in sight to the Russian-Ukrainian war, Europe is facing a very difficult winter, with energy shortages and high power prices expected across the Eurozone region. With countries like France scrambling to reactivate their nuclear capacity after many were put into maintenance, it seems likely that the energy crunch will last into the medium term. Accompanied by rising oil prices due to OPEC+ announcing a cut to their production by 2 million barrels a day, energy supply will remain an issue, putting a bleak outlook on the region. Therefore, it’s likely that the Euro will remain weak against the USD.
The Australian Dollar extended its losses in the past week, losing around 2.7% of its value on the back of a more risk-off market. It has broken down through both the long-term horizontal support level at 0.668 and the second support level at around 0.635 on significant volume, indicating severe weakness. This is backed up by the rapid divergence of the MACD from its signal line, illustrating the relentless selling pressure the AUD is experiencing. It will be interesting to see where the AUD will bottom out and traders begin to buy the dip, as there are no further support levels until either the 0.60 region or the 0.57 bottom reached during March 2020.
The Euro traded flat over the week to consolidate firmly below parity. It continues to respect the downward channel that has formed over the past year, and its failure to push back above parity means that investors will likely continue to push the Euro downwards until it retests the bottom trendline at around the 0.94 level. The MACD also supports this hypothesis as it has recently crossed below the signal line, suggesting that sentiment has turned bearish. It will be interesting to see when the Euro will make a significant move above or below the channel, as this will dictate its price action in the future.