It was an excellent week for the Australian dollar. AUD/USD gained 1.4% on Friday and climbed an impressive 2.8% last week. The pair touched a weekly high of 0.7381, its highest level since December 2018. On Monday, AUD/USD is trading at 0.7364, down 0.02% on the day.
Aussie jumps on Powell inflation comments
The US dollar retreated against the major currencies on Friday, after Federal Chair Jerome Powell delivered an address at the Jackson Hole Symposium. Powell’s speech amounted to a major shift in policy for the Federal Reserve, shaking up the currency markets. Powell said that the Fed would allow inflation to overshoot its inflation target of 2 percent. This target has been a central component of Fed monetary policy for years, so the change in stance is certainly significant. Under the new approach, the Fed will be aiming for an “average inflation” of 2%, which means that inflation could exceed the 2% level after a period of weak inflation. The US yield curve steepened in response, as the markets are projecting that interest rates will stay low for the foreseeable future. This put strong pressure on the US dollar at the end of the week.
Australia’s company earnings climb
The trading week kicked off with mixed news in Australia. Company Operating Profits surprised analysts with a stellar gain of 15.0% in the second quarter, up from 1.0% in the first quarter. The forecast stood at -6.0%. On the inflation front, the Melbourne Institute Inflation Gauge slowed to just 0.1%, down from 0.9% beforehand. Later in the day, Australia publishes AIG Manufacturing Index. The indicator is coming off a reading of 53.5, which points to slight expansion.
AUD/USD dipped lower in the Asian session and has recovered these losses in European trade
- There is resistance at 0.7405, which has held since August 2018. This is followed by resistance at 0.7440
- 0.7292 is the first line of support. Below, there is support at 0.7218
- AUD/USD broke above the 10-day MA last week and continues to move upwards