Traders focused on the FOMC meeting minutes, which perhaps showed a switch to a modestly hawkish view. The key takeaway from the minutes was the fact the Fed sees the labour market as improving more rapidly than expected and this could lead to a revision in the ‘underutilisation’ of the labour market view.
As far as rates are concerned, the Fed feels that if the convergence of the committee’s goals happened quicker than expected, it would deem reduced policy accommodation appropriate. The market now looks ahead to Jackson Hole, with analysts split on whether Janet Yellen will maintain her dovish ways or give a much more balanced view. Should she deliver this view, the market is likely to perceive a hawkish shift. The greenback exhibited significant strength against the pound, euro and yen.
Key uptrend broken
AUD/USD has been on the back foot in Asia with losses extending on the back of HSBC China manufacturing PMI print. The reading came in at 50.3 – well below expectations of 51.5. Given China concerns have somewhat ramped up over the past few weeks, any disappointing readings are likely to stoke concerns.
AUD/USD dropped to a low of 0.9239 and is essentially retesting lows from earlier in the month. The pair has breached an uptrend support line in place since February, leaving it looking quite vulnerable. Additionally, the RSI indicates there is more room for selling in the near term. The next level I will be looking at is the 38.2% retracement of the rise from February to July, which comes in at 0.9182.