AUD/USD drops to fresh two-month lows, below 0.6700

The Australian dollar continues to weaken against the greenback, failing to recover after Tuesday’s hot US inflation report spurred expectations that the US Federal Reserve might tighten even 100 bps in September’s monetary policy meeting. Nevertheless, with the CME FedWatch Tool, odds for a large increase lie at 20%, less than the 80% chance of a 75 bps rate hike.

Therefore, the AUD/USD is down, after hitting a daily high at around 0.6770, but is tumbling sharply. At the time of writing, the AUD/USD trades at 0.6702, above the 0.6700 psychological level.

AUD/USD stumbles below the 0.6700 figure on Fed’s aggressive estimates

US data released earlier during the day confirms that the Federal Reserve would likely continue to tighten monetary conditions. A solid US Retail Sales report in August, with sales bouncing 0.3% MoM above estimates, cements the case for the Fed hiking 75 bps. The year-over-year figure was 9.37%, lower than July’s figures.

At the same time, the US Labor Department showed that Initial Jobless Claims for the past week, ending on September 10, decelerated by 213K, lower than economists’ estimates of 227K, showing the labor market’s resilience.

Elsewhere, the New York and Philadelphia Fed Manufacturing Indices were mixed. The Empire State, albeit improving, remained in contractionary conditions, while the Philadelphia Fed index dropped to the contractionary part after rebounding in the August report

On the Australian side, the employment report was solid, adding 33.5K employments in August, in line with forecasts, while the unemployment rate rose to 3.5% from 3.4%. ANZ bank analysts expect that the Reserve Bank of Australia (RBA) will lift rates by 50 bps.

“An overall solid labor market report adds to the case made by the strong NAB business survey and US CPI data earlier this week for the RBA to hike the cash rate 50bp in October,” said analysts at ANZ.

What to watch

The Australian economic docket will be light, reporting the Consumer Sentiment Index (CSI). The US economic docket will feature the  University of Michigan Consumer Sentiment alongside consumer inflation expectations.

AUD/USD Price Analysis: Technical outlook

From a daily chart perspective, the AUD/USD is downward biased, with room to challenge the YTD low at 0.6681. The Relative Strength Index (RSI) pointing downwards, below the 50-midline, confirm the bearish bias in the major, with enough room to spare, before reaching oversold territory. Therefore, the AUD/USD first support would be 0.6681, which, once cleared, would expose the 0.6600 figure on its way towards May 2020 lows at 0.6372.