- Bears eye the 50% mean reversion area to mitigate the price imbalance towards 0.7350.
- US dollar firm on US NFP and Fed expectations, RBA is also eyed this week.
AUD/USD will start out the second quarter's first full week on the back foot following last week's bearish close pertaining to a stronger US dollar and Federal Reserve interest rate hike expectations. At 0.7499, AUD/USD closed Friday a touch in the green, +0.21%, within the day's range of 0.7472 and 0.7524. However, for the week, the pair lost 1.11%.
The US dollar is firm considering the expectations so the Federal Reserve. Fed officials began the process of policy normalization by lifting rates 25bp to 0.25%-0.50% at the March meeting. On the weekend, Reuters has reported what New York Fed President John Williams said on Saturday in this regard.
''Williams, in response to questions at a symposium about whether the Fed needed to hasten its return to a neutral policy rate that neither encourages or discourages spending, noted that in 2019 with rates set near the neutral level 'the economic expansion started to slow,' and the Fed resorted to rate cuts.''
''The Federal Reserve needs to move monetary policy towards a more neutral stance, but the pace at which it tightens credit will depend on how the economy reacts,'' Williams added.
This week will offer the minutes of the last meeting. ''The FOMC pull no hawkish punches in its policy guidance, with Chair Powell also hinting further information about QT plans will be provided in the minutes (possibly including caps details),'' analysts at TD Securities said. ''We continue to expect an official QT announcement at the May FOMC meeting.''
US dollar firm
The US dollar is up as US rates recover, rising Friday, helped by robust US job growth numbers for March that firmed market expectations that the Federal Reserve will increase the pace of interest rate hikes in an effort to blunt rising inflation. 431,000 jobs were added last month, below the estimates of 490,000, although data for February job increases were revised higher. However, the Unemployment rate fell to 3.6%, the lowest since February 2020. The DXY was higher for the second straight day after two straight down days and is trading back near 98.50. This month’s cycle high near 99.418 should eventually be tested.
Looking ahead for the week, the Reserve Bank of Australia is meeting. ''We expect the RBA to reiterate that it remains 'patient', looking past the Budget handouts,'' the analysts at TD Securities said. ''The RBA seems comfortable with the risk of moving too late than too early and noted that it won't respond until there is "evidence of pervasive price pressures". Thus, we like Rec Jun'22 RBA OIS. We retain our call for the first 15bps hike in Aug but now expect another hike in Sep.''
AUD/USD technical analysis
The price is under pressure from weekly resistance and would be expected to correct towards the 50% mean reversion area to mitigate the price imbalance towards 0.7350.
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