Fed Chairman Jerome Powell’s highly anticipated Economic club speech delivered a welcome message to Wall Street. Rates are near neutral, a shift from his comments on October 3rd that we’re a long way from neutral on interest rates, indicating more hikes are coming. High-frequency trading firms and algos immediately sold the dollar after the prepared remarks were released.
Stocks soared and the dollar dropped across the board as the Powell Put seemed to have returned. The Fed Fund futures is now only pricing one hike for 2019. The major indexes in the US are now up all over 3% on the week, but it is too early to make calls for a Santa Clause rally since now the focus will quickly return to trade and the meeting amongst President Trump and President Xi.
The US dollar was weaker across board with both the Australian dollar and kiwi having the best the gains. AUD/USD rallied over 1.1% and settled around the 0.7300 level. The Aussie currency weakness has been supported by the lack of progress in trade talks between China and the US. Softer Chinese data has coincided with the slump with steel and iron ore prices. Commodity currencies could continue to trade down on softer Chinese data and lack of progress with trade talks. President Trump will meet President Xi this weekend at the G-20 summit, but expectations are low for anything concrete to come from meeting on trade.
Price action on the AUD/USD daily chart shows that steady bearish move lower for 2018 formed a key bottom in October. The recent consolidation has made a higher high and recaptured both the 50- and 100-day Simple Moving Average (SMA). Today’s spike was strictly a dollar move and if we continue to see this bullish rally, price may find initial resistance from the 0.7400 region. It is around that area that price could form a bearish Butterfly pattern. If the pattern is invalidated, further upside could target the 200-day SMA, which currently trades around the 0.7444 level.