DXY depreciated 0.3% to 103.3 after a volatile overnight session during Fed Chair Jerome Powell’s interview at The Economic Club of Washington. Risk appetite improved on Powell’s disinflation and economic resilience remarks. However, we also noted the sharp dip in the US stock indices and the DXY’s bounce from 103 when Powell warned that the peak rate in the current cycle might be higher if a strong US labour market persisted. The DXY’s latest push above its 101-103 range coincided with the US Treasury 10Y yield’s escape from its 3.32-3.58% range to 3.60%. DXY could regain its composure if the 10Y yield trades above 3.72% (100-day moving average) towards the 3.87% level at the start of 2023.
During his post-FOMC press conference last Wednesday, Powell said the Summary of Economic Projections (SEP) on 22 March would depend on how the US inflation data and labour market play out. On 14 February, consensus expects CPI inflation to jump to 0.5% MoM in January after a 0.1% decline in December and core inflation firming to 0.4% from 0.3%. New York Fed President John Williams believes the US needs a period of below-trend growth and softer labour market conditions to bring down inflation. He will be interviewed at a Wall Street Journal live event today. Minneapolis Fed President Neel Kashkari did not change his mind about wanting the Fed Funds Rate higher at 5.4% this year vs the 5.1% projected in December’s SEP.
AUD appreciated by 1.1% to 0.6959. The Oz’s recovery from its technical support level (50-day moving average at 0.6856) came after three days of selling from the greenback’s post-FOMC rebound. AUD did not break above 0.6950 after the Reserve Bank of Australia delivered its fourth consecutive 25 bps hike to 3.35% and kept the door open for more hikes. The brief push above 0.6950 in the overnight session was attributed to the greenback’s slide on Powell’s disinflation remarks. Unlike other countries, inflation has yet to show a peak in Australia. CPI inflation did not slow in 4Q22 and hit a 33-year high of 7.8% YoY instead. The RBA acknowledged that bringing inflation down to its 2-3% target would keep the path to achieving a soft-landing narrow. The daily charts show AUD confined to a 0.6860-0.70 range and taking its direction more from the Fed and the USD. To avoid more losses, AUD must hold yesterday’s low at 0.6856.
Quote of the day
“I remember when I first won the Academy Award and how much I loved it. I just wish there was an award around that you could really believe in again.”
Joanne Woodward
8 February in history
The official groundbreaking ceremony was held for the Hollywood Walk of Fame in 1960. The first star was dedicated to actress Joanne Woodward.
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