AUD/USD trading near lowest since early December at 0.7070 as buck remains buoyant

• AUD/USD is trading just above its lowest levels since early December near 0.7070 as the dollar remains firm.
• The buck has been boosted across the board by Wednesday’s hawkish Fed and Thursday’s strong US Q4 GDP numbers.
• With major technical support having been cleared, bears will be eyeing a test of 2021 lows near 0.7000.

After hitting its lowest levels since early December just above the 0.7060 mark in recent trade, AUD/USD has continued to trade heavy and at current levels close to 0.7070, trades lower by about 0.6% on the day. The Aussie’s losses are broadly in line with the losses being experienced by most of its non-USD G10 peers, with the major theme driving FX markets on Thursday being post-hawkish Fed dollar strength. Adding to the US dollar’s tailwinds in recent trade was a substantially firmer than expected first estimate of Q4 2021 GDP growth of 6.9% annualised during the quarter, well above the median forecast for 5.5%.

A new poll showing a hawkish shift in investor expectations for RBA policy was unable to shift AUD or distract from post-hawkish Fed US dollar flows. According to the poll, the median economist expectation for when the RBA will implement its first post-pandemic rate hike will be in November of this year, significantly earlier than the central bank’s current guidance for late-2023/2024. Meanwhile, 17 of 22 economists also predicted that the RBA would axe its bond-buying programme in its entirety on its February first meeting next week.

Looking ahead to the rest of the week, with the Fed meeting, US GDP figures, and Australia Consumer Price Inflation data in the rear-view mirror, things should be calmer for the rest of the week from an economic standpoint. AUD/USD should still keep an eye on Friday’s US December Core PCE inflation data, but the main theme for the rest of the week will be USD flows as investors digest the latest Fed meeting and risk appetite. The latter has shown signs of improvement on Thursday, not least helped by more conciliatory rhetoric from the Russians on Ukraine. Nonetheless, with AUD/USD having cleared the last major area of support ahead of sub-0.7000 2021 lows in the 0.7080s, the bears may have the upper hand going into the weekend.