AUD/USD struggles at 0.7100 and tumbles on buoyant US Dollar

The AUD/USD retreats after hitting a daily high at 0.7120, as the US Dollar (USD) recovers some ground against most G8 currencies, underpinned by high US Treasury bond yields and a sour sentiment, as shown by US equities sliding. At the time of writing, the AUD/USD is trading at 0.7076.

US economic data begins to support the Fed’s soft landing

A risk-off impulse keeps investors sidelined ahead of Wednesday’s US Federal Reserve (Fed) monetary decision. The AUD/USD continues to drop, eyeing a January 25 daily low test at 0.7032, which, once conquered, could put into play the 0.7000 mark. Last week’s US economic data, with US Gross Domestic Product (GDP) for Q4 exceeding estimates but lower than Q3’s data, justified a group of Fed officials backing lower-sized rate increases.

In addition, a Fed inflation gauge known as the core Personal Consumption Expenditure (PCE) dropped from 4.7% in November to 4.4% in last month’s annually based. Also, US consumer sentiment improved, as a University of Michigan (UoM) poll reported, while inflation expectations edged lower.

That said, the US Federal Reserve (Fed) is expected to raise rates by a quarter percentage point (0.25%) on Wednesday, ending the era of 75 plus hikes, which lifted the Federal Funds rate (FFR) to the 4.25-4.50% range.

The US Dollar Index (DXU), which measures the buck’s value against a basket of currencies, continued to gain ground and reclaims the 102.000 figure, up 0.15% at 102.079. in the meantime, the US 10-year benchmark note rate extends its gains, up by four basis points (bps) at 3.546%.

What to watch?

The Australian economic docket will feature housing data and the last update of Retail Sales, which are expected to drop to -0.3% MoM. The US calendar will feature the Employment Cost Index (ECI),  housing data, the Chicago PMI, and the CB Consumer Confidence Tuesday.

AUD/USD Key Technical Levels