AUD/USD soared on pain in US dollar and an upbeat AU wage data

• USD is on the back foot of risk aversion.
• AUD is boosted by an upbeat Australian wage growth data.

The AUD/USD is now trading around 0.7840, in New York session, soaring up 0.5% on broader pain in US dollar coupled with an upbeat Australian (AU) wage data released on Wednesday. AU wage price index for Q4 came as upbeat at 0.6% vs estimate/prior: 0.5% (Q/Q).

On the other side, USD is under pressure on the concern of stock market risk aversion as the US 10-year bond yield is now eyeing the psychological 3% mark after the FOMC minutes which is quite optimistic about the US economic growth, inflation and more confident about rate hikes.

The FOMC souded more positive on the economic outlook, citing a substantial underlying economic momentum and were increasingly optimistic about achieving their inflation target. Fed anticipated that the rate of GDP in 2018 would exceed their estimates of its sustainable longer-run pace and that labor market conditions would strengthen further.

Since December a number of FOMC members also raised their growth forecasts with many seeing upside risks from the tax cut that warranted the addition of the word "further" to their assessment of stronger growth.

Apart from Fed & US narrative, another theory behind the surge in US bond yield is shifting perceptions about the ECB’s policy outlook, which had a significant role to play in the plunge of the US bonds that began in September and picked up speed last month, roiling global stocks.

In essence, FOMC minutes for January may be also termed as less hawkish than expected as most of the FOMC members agreed that recent strengthening of the economy increased the “likelihood of further gradual rate increases” instead of simply “further gradual rate increase”.

USD bulls were also expecting that Fed may shift their 3 dot-plots into 4 this year due to upbeat US economic data and concern of higher fiscal/tax deficits and inflation; otherwise, Fed may find itself behind the inflation curve. But nothing was there. The market may be now discounting 3 rate hikes in March, July and December’18 as par Fed’s dot-plots.

Thus the FOMC minutes for January may be termed as less hawkish than expected by the market and subsequently, USD is being doomed across the board and AUD is a prime beneficiary of that US dollar weakness right now despite RBA concern about the strength of the currency and a dovish RBA minutes.

Overall, Fed speaks may be also cautiously optimistic about Fed hikes. Fed’s Kashkari also sounded like an optimistic dove, as usual, commenting that although US economy is doing well, he is not sure about full US employment and inflation. Thus Fed should be patient in hiking further rates until there are definitive signs of inflation build up above Fed’s 2% target.

Meanwhile, Fed's Quarles said that gradual rise in interest rates are 'appropriate' as US economy is performing very well and the natural rate of interest is increasing in the US. Fed’s Bullard also warned the Fed needs to be careful not to increase interest rates too quickly this year.

Technically, as par Fibonacci pattern, the AUDUSD has now immediate support at around 0.7865 and sustaining below that it could further fall to 0.7755 zones. For any recovery, AUDUSD needs to sustain above 0.7950 for a further rally towards 0.7995-0.8055/0.8136 price area in the days ahead.