AUD continues to be sold on strength

While the headlines were around inversion rules and geopolitical tension, Fed members spoke at a community banks conference in Missouri with a hawkish bias.

Source: Bloomberg

James Bullard said he sees the first Fed tightening at the end of Q1 and a drop of the ‘considerable time’ reference at the October meeting. Kocherlakota also spoke and raised concerns about raising rates prematurely due to his forecast that inflation may remain below 2% for four years. However, his opinion seems a bit dated and out of tune with the recent dot plot analysis. All these developments saw the greenback continue to march higher against most of the majors.

Bears eyeing a test of $0.8800

Yesterday I highlighted selling AUD/USD near-term rallies into the $0.8930 region as my preferred strategy. This trade came to fruition as the AUD enjoyed a minor pop higher on the back of the positive China PMI print. Today we have the RBA’s financial stability review, but this has more to do with risks to financial stability than policy. Comments on the housing market will be of interest after recent calls of a bubble. As a result, I feel focus will be more on how commodities perform through Asia. I still feel $0.8800 could be tested in the near term.

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