AUDUSD Dynamics: FED's Call and Gold's Response

21 feb

Today, both the Australian and U.S. dollar face two important pieces of news. The Federal Reserve (Fed) will announce its interest rate decision, and a cut is expected due to persistent inflation. However, implementing these significant cuts to control inflation could be challenging, especially with a U.S. president who continues to churn out greenbacks to fund overseas operations rather than manage government spending more efficiently at home. As James Bullard, president of the St. Louis Fed, noted. Bullard, at the National Association of Business Economics Policy Conference in Washington, it's all about soft-landing toward 2%. According to Bullard, "the Fed's benchmark should be at 'Neutral,'" neither inflating nor reducing demand, with the default definition of neutral being a ratio below 4%.


As for Australia, the PMI Index is expected to be higher than in its last communication, with the previous being 49.1 versus 50.2 in Services, 50.1 versus 50.9 in Manufacturing, and a Composite of 49 versus 50.1. If these expectations are met, we may see a slight uptick in both the Australian dollar and gold, considering the data with a positive correlation of 0.55 aver 1 on the TradingView correlation meter.

From a technical point of view, the daily chart of the AUDUSD pair shows a breakout of the bearish channel at the end of last year and a recovery in the Check Point (POC) price zone around 0.64168. Fed action and PMI data may influence a potential pullback in the Aussie dollar, although positive PMI momentum could offset this effect. The chartism facilitates to see within a bullish move a Shoulder-Head-Shoulder which tells us that it is very likely to generate a pullback to checkpoint zone prices. The devaluation of the Aussie may facilitate Australia's continued strong export of technology products related to the extractive commodity industries: gold, gas and oil. It is feasible to see a rebound in the area of 0.67281 to bring the price back if the value of the greenback makes Australia gain strength, and exit the long term bearish channel, and subsequently look for new highs at 0.68628. The RSI divergence marks us an average percentage around 51.89% in the direction of a wide space for buying.

In the case of gold, in the last fraction of the year it has replicated in a slightly similar way, although they are totally different charts. This one indicates a lateralization since December, currently it is in the middle zone of this lateral channel, with possible upward movements if the FED data does not convince if we follow the RSI indicator which is at 51.95% only; or temporary price cuts if they do, taking its price towards $1977.72 which is the zone of the strongest support of December. It would be feasible to look for $2055.40 if the FED data today is not convincing and makes people look for safe havens again.

Ion Jauregui - AT Analyst



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