12th January 2021 - AUD Rallied 21DMA and probing 0.7200 level as buck suffers post-Powell testimony

Market Headlines

The dollar fell sharply on Tuesday, following comments from US Federal Reserve chief Jerome Powell. In the hearings before the Senate amid his nomination for a second term, the leader of the US central bank mixed a hawkish view of the economy with a cautious approach to the reduction of the balance sheet.

Powell noted that the economy is growing at its fastest rate in years, while the labour market is "robust." Also, he said the Fed would stop higher inflation from getting entrenched, cooling down the market's concerns. At the same time, he said that the balance sheet runoff could happen "perhaps later in the year," cooling expectations for an aggressive tapering. Meanwhile, US Fed Vice-Chair Richard Clarida stepped down on Monday after failing to report stocks' trading just a few days before the Fed announced emergency financial measures to shore up markets in the middle of the coronavirus pandemic. Fed vice-chair said his failure to report those trades was the result of "inadvertent errors."

Wall Street advanced on relief, with the three major indexes holding on to gains ahead of the close. US government bond yields eased as the yield on the 10-year Treasury note retreated to 1.75%. The focus now shifts to US inflation figures.

Overnight Currency Range

AUD/USD 0.7155 0.7213

EUR/USD 1.1313 1.1375

GBP/USD 1.3563 1.3627

USD/JPY 115.12 115.68

NZD/USD 0.6740 0.6790

USD/CAD 1.2567 1.2675

USD/CNH 6.3765 6.3842

AUD/JPY 82.54 83.21

AUD/NZD 1.0605 1.0628

AUD Thoughts

The highlight of the week due tonight in US CPI, consensus expects the headline rate to hit 7.0% (a 39-year high), while core CPI should accelerate to 5.4% (prev. 4.9%). The AUD/USD was trading at the upper end of its 0.7155/.7213 range in late trade. Demand remains ahead of 0.7100/05 while supply should materialise if we push back towards 0.7260/70.

Event Risk Data Today

Australia – November job vacancies

US – December CPI

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