AUD/USD is threatening to break to a new four-month low after Fed Chairman Powell surprised investors who had expected a dovish lean, but the persistent market expectations of a U.S. rate cut will limit downside risks.
Powell's comments that transitory factors were influencing the drop in inflation and that there is no case to move policy in either direction stunned U.S. dollar bears, leading greenback to rally sharply along with U.S.
Exiting of AUD/USD longs from short-term traders pushed the pair below the 50 percent Fib of 0.6715-0.7295 and turned RSIs down, suggesting more losses to come.
That momentum could be short lived. Though diminished by Powell's comments, rate-cut bets remain intact for late 2019 or early 2020.
Some reasons for those cut expectations are inflation USPCE2=ECI remaining below the Fed's 2 percent target and concerns about slow U.S. manufacturing nL5N22E5OT.
Australian short-term rates markets suggest RBA cuts are coming this summer but that easing has been priced in by the market, so the impact will be limited. If tomorrow's NFP and AHE reports undershoot forecasts, the greenback should slide.
AUD/USD's recent losses could reverse and a course for April's high might be set.
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