Federal Reserve Governor Jerome Powell's much anticipated Jackson Hole speech will take place late Friday and if he is as hawkish as some of his colleagues, the Australian dollar might be in for a sharp fall.
Expectations in the weeks ahead of the speech have shifted from expecting Powell to outline a timeline for the tapering of the US$120 billion per month asset purchases, to expecting him to be cautious and signal the Fed will be data dependent.
Following hawkish comments from Dallas Fed President Kaplan and St.
Louis Fed President Bullard, market opinion is divided and unsure. nW1N2B800YnS0N2OC00A
If the Fed chair's speech is perceived as hawkish, the U.S. dollar will likely move broadly higher.
The Australian dollar will be vulnerable if risk assets slide lower on the prospect of a less accommodative Fed, due to the AUD's role as a barometer for the foreign exchange market's risk appetite.
A recent Reuters poll revealed that two-thirds of respondents believe there will be a correction in global equity markets by the end of the year and Fed tapering was one of the likely catalysts. nL4N2PV19Z
Technical support levels for the AUD/USD are found at the August 20 trend low at 0.7106 and the 38.2 Fibonacci retracement of the 2020/2021 move at 0.7053.
Those levels may be targeted if there is a hawkish turn in Fed expectations.
Conversely, a break above the 21-day moving average at 0.7300 would suggest a short-term bottom is in place.
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