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Hawkish Powell Emboldens USD Rally, DXY Matches 2023 Highs

FOREX
  • The greenback extended its initial strength on Tuesday with a set of hawkish remarks from Fed Chair Powell underpinning an impressive USD rally. The USD index (1.21%) has risen to the best levels of the year and is currently hugging session highs as we approach the APAC crossover.
  • While it was not a big surprise that Powell envisages a higher potential terminal rate, the significant and surprising development that Powell suggests they could re-accelerate to 50bp hikes has placed upward pressure on US yields, with the 2-year yield rising to 5%, the highest level since 2007.
  • The broad dollar strength has most heavily weighed on the Australian dollar, impacted by not only a dovish RBA but also the associated pressure on major equity indices throughout the US session.
  • AUDUSD (-2.20%) continues to plumb fresh YTD lows and has taken out key support at 0.6629, the Dec 20 low. In more recent trade, the pair has slipped below the 0.66 handle to touch 0.6582, narrowing the gap with the next support seen at 0.6547, a Fibonacci retracement.
  • GBPUSD (-1.67%) has now breached key support at 1.1842, the Jan 6 low, which highlights a broader medium-term reversal threat and a potential double top pattern on the daily chart. Below here, the focus turns to 1.1764, the November 17 low.
  • USDJPY has recently pierced through last Thursday’s high of 137.09, placing the pair at a fresh 11-week high and signalling scope for a move towards 138.17, the Dec 15 high.
  • Potential comments from RBA Governor Lowe kick off Wednesday’s docket before German IP and retail sales data. ECB’s Lagarde may also speak before the Bank of Canada decision/statement. Regarding the US, ADP employment and JOLTS data are scheduled before Friday’s NFP report.
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