What a dramatic day it turned out to be. U.S. inflation data surprised to the upside while retail sales disappointed. The dollar jumped, then sold off. Stock indices also fell sharply before bouncing back even more strongly. Risk is back on. But bond yields remained elevated with the benchmark 10-year climbing to 2.90% as it closes in on that critical 3% level. The market is now pricing in a 100% chance of a rate hike in March. But it looks like the dollar does not care anymore, as it continues to shrug off better than expected news. The Fed’s projected rate hikes had been mostly priced in before the inflation data came out anyway.
But this does not mean that the dollar cannot bottom out soon. However, when the market talks and refuses to do what it "should" then once has to listen carefully. The market is telling us that the dollar has not bottomed out yet. This could be because of the fact that central banks elsewhere are also turning hawkish. Previously it was a one-horse race, with the Fed being the only hawkish one out there on its own. Now you have the BoE, BOC, and several others joining in as worries about global inflation rises. In addition, concerns over US debt and lack of trust in the government could be additional factors weighing on the dollar.
Aussie jobs data in focus
So, while it might be Valentine’s Day, the dollar is finding no love. With that in mind, there’s a good chance the AUD/USD will be able to push further higher tonight barring the release of very disappointing Aussie jobs figures. Employment is expected to have risen by 15,300 in January while the unemployment rate is seen steady at 5.5%. It is worth remembering that the devil is always in the detail: sometimes a strong headline figure masks over the cracks and the employment data looks impressive only because of a rise in part-time jobs. So, what the Aussie bulls need to see is a rise in full-time employment, regardless of what the headline figure shows.
AUD/USD could extend rally
With the U.S. dollar selling off in reaction to today’s U.S. macro pointers, the AUD/USD is more likely to go up than down in the next couple of days. As a result, we expect the potential dips to old resistance levels at 0.7895 or 0.7875 to be supported. The key bullish objective now is at 0.7990-0.80050. This area was previously support and so could turn into resistance upon re-test. In addition, the 61.8% Fibonacci level also comes into play here. The trend is clearly bullish as indicated for example by rising 50- and 200-day moving averages.