Traders are selling the Aussie dollar whenever it attempts to rally

Michael Urban/AFP/Getty Images
  • The Australian dollar gave up earlier gains to close Tuesday’s session lower.
  • Hawkish remarks from US Federal Reserve Chair Jerome Powell were cited as the catalyst behind the Aussie’s reversal.
  • There’s nothing on the economic data calendar in Asia today. However, inflation reports from the UK and Eurozone look set to spice things up later in the session.

The Australian dollar went on another roller coaster ride on Tuesday, falling, then rallying, before sliding into the close.

Here’s the scoreboard as at 7am in Sydney.

AUD/USD 0.7385 , -0.0033 , -0.44%
AUD/JPY 83.35 , 0.06 , 0.07%
AUD/CNH 4.9647 , -0.0063 , -0.13%
AUD/EUR 0.6332 , -0.0002 , -0.03%
AUD/GBP 0.5630 , 0.0026 , 0.46%
AUD/NZD 1.0884 , -0.0057 , -0.52%
AUD/CAD 0.9741 , -0.0002 , -0.02%

And here’s a AUD/USD hourly chart, revealing the choppy price action that’s been seen in recent weeks.

Investing.comAUD/USD Hourly Chart

After slipping lower in early Asian trade, undermined by slightly dovish commentary from the RBA at its July monetary policy meeting and steep losses in Chinese financial markets, the AUD/USD surged higher following news that New Zealand core consumer price inflation rose at the fastest annual rate since 2011 in the June quarter.

That sent the New Zealand dollar skywards, dragging the Aussie along for the ride.

After hitting a high of .7438 in early European trade, the Aussie dollar began to reverse those gains and more in the second half of the session, succumbing to a wave of US dollar strength driven by hawkish remarks from US Federal Reserve Chair Jerome Powell and another robust US industrial production report for June.

“With appropriate monetary policy, the job market will remain strong and inflation will stay near 2% over the next several years,” Powell told the US Senate Banking Committee.

“With a strong job market, inflation close to our objective, and the risks to the outlook roughly balanced, the FOMC believes that — for now — the best way forward is to keep gradually raising the federal funds rate.”

Powell also discussed mounting trade tensions between the United States and China, noting that it “will be bad for our economy and for other economies”. However, he admitted that it was “difficult to predict” how the tensions will impact the US economy.

While nothing earth-shattering, it was enough to lift the US bond yields, dollar and stocks, and heap pressure on commodity prices as well as the Aussie dollar.

“The key take away is that trade policy has not yet affected the Fed’s intentions for further gradual hikes,” said Rodrigo Catril, Senior FX Strategist at the National Australia Bank.

“The Fed remains data dependent and the inclusion of the phrase ‘for now’ provides the Bank with some flexibility if it needs to alter the interest rate path ahead.”

With absolutely nothing on the economic events calendar in Asia, it’s likely that movements in Chinese financial markets will yet again reassert its influence over the Aussie dollar in the first half of the session.

Later in the day, data highlights include inflation readings from the eurozone and UK along with building permits, housing starts and crude oil inventory data from the EIA in the US.

The US Federal Reserve will also release its Beige Book of economic conditions in the latter parts of the session.

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