- US Dollar gains momentum during the American session as US yields move higher.
- Markets wobble after US economic data, ahead of central banks meetings next week.
- AUD/USD drops after a four-day positive streak.
The AUD/USD dropped from the highest level since June during the American session after the US Dollar gained momentum. The pair peaked at 0.7141 and then retreated more than 50 pips. It is hovering around 0.7080, near the daily lows.
The Aussie is headed toward the first daily loss versus the US Dollar after rising for four consecutive days. The trend remains bullish but if the current correction deepens, it could turn into a reversal. The next support is seen at 0.7060 (Jan 25 low) followed by 0.7025. On the upside, a consolidation above 0.7120 would keep the doors open to more gains.
Markets digest new information
Despite the upbeat economic numbers released on Thursday, the outlook is not clear, with mixed signs and higher interest rates. “Monthly data indicate that while the economy came into the fourth quarter with solid momentum, it ended the quarter with a distinct loss of momentum. Growth likely will be weak, at least relative to the last two quarters of 2022, in Q1-2023”, said analysts at Wells Fargo.
US yields ended up moving higher after the economic reports while US equities moved off highs, favoring the US Dollar. The DXY is up for the day above 102.00 after reaching earlier the lowest level since May. The downtrend for the greenback remains in place but it does not look as strong as two weeks ago.
Next week, the Federal Reserve will announce its decision on monetary policy and a 25 basis points rate hike is expected. Market participants do not see this as the last hike.
On Friday, Australia will report the Producer Price Index for the third quarter. The following policy meeting of the Reserve Bank of Australia is February 7. Market participants see a 25 basis points rate hike.
Technical levels
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