AUD/USD sinks on hawkish Lowe

It has been a disastrous session for AUD/USD, which has plunged 1.26% and is trading at 0.6899.

Lowe says more hikes coming

RBA Governor Philip Lowe faced a grilling from Australian lawmakers earlier. Higher rates and high inflation have caused a cost-of-living crisis and the RBA has been heavily criticised for the sharp rate-tightening cycle.

Lowe confirmed that more rate hikes were on the way due to the need to curb inflation. Lowe warned that the battle against inflation was paramount, saying high inflation could lead to an increase in inflation expectations which would result in higher rates and more unemployment. Inflation is running at 7.8%, the highest level in over 40 years, which Lowe said was “way too high”. Australia will release employment data on Thursday. The economy is estimated to have created 20,000 new jobs in January, following a decline of 14,600.

The US will release January retail sales later today. Headline retail sales is expected to rebound with a 1.8% gain while core retail sales is forecast to rise 1.1%. Both releases came in at -1.1% in December, so a strong showing would be bullish for the US dollar. The markets have been dovish about the Fed’s rate policy on the assumption that the economy is weakening, but the blowout employment report and an inflation release that was higher than expected have forced investors to rethink expectations that the Fed will pivot and cut rates later this year. A strong retail sales report would support the Fed’s hawkish stance of “higher for lower” and possibly a higher terminal rate than previously expected.

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AUD/USD Technical

• AUD/USD is testing support at 0.6962. Below, there is support at 0.6846
• 0.7036 and 0.7143 are the next resistance lines