The US dollar has shown signs of stabilizing after hawkish comments from Federal Reserve officials, including Jerome Powell, hinted at possible future interest rate hikes. This follows a period of decline triggered by steady interest rates and a cooling U.S. labor market.
On Tuesday, November 7th, the Dollar Index rose +0.33% as Federal Reserve officials Kashkari, Goolsbee, and Bowman hinted at further monetary tightening. The dollar’s strength led to a -0.21% decline in the EUR/USD and a +0.23% rise in the USD/JPY.
Futures data from the CME FedWatch tool indicates a 15% chance of another rate hike by January 2024 and a 22% chance of a cut by March 2024. Meanwhile, other currencies have shown volatility against the dollar. The British pound, Japanese yen, and New Zealand dollar have all been volatile this week, while the euro has been hurt by a weak euro-zone growth outlook and falling German industrial production.
Meanwhile, the Australian dollar is facing challenges after the Reserve Bank of Australia (RBA) raised interest rates to a 12-year high, marking its biggest one-day drop in about a month. Although the rate hike brings the OCR to 4.35%, concerns about Australia’s slowing economy and rising inflation risks have led the RBA to adopt a dovish stance, creating uncertainty about future rate hikes.
The AUD/USD pair experienced a bearish trend as low as 0.63 before finding support and rallying, hitting resistance at the 100 SMA ahead of the RBA meeting. However, the bullish trend stalled at the 100 SMA. Despite the rate hike, the AUD/USD continues to trade lower near the 0.6420 level.
The IMF‘s revised GDP growth forecasts for China for 2023 and 2024 may support the Australian dollar due to Australia’s strong trade ties with China.