Selling AUD/USD Again, As Powell Consists on Inflation

Selling AUD/USD, Yesterday we opened a sell forex signal in AUD/USD and NZD/USD before FED chairman Jerome Powell made his testimony on the CARES Act before the House Financial Services Committee, in Washington DC. He made it clear that inflation is not transitory anymore, which is quite a change from several months ago, which sent the USD higher and AUD/USD lower. Although, we saw a reversal later in the day and this pair ended up higher.

But, the dive was enough to hit our take profit targets in both trades and today we decided to take another shot selling AUD/USD before the second day of Powell’s testimony. He reinforced yesterday’s point that inflation has spread more broadly and the USD is turning bullish again. We are in profit and the price is heading toward our take profit target for the second time. Australia’s GDP report early today showed a contraction in Q3, which was smaller than expectations, but it was a decline nonetheless, so we think that AUD/USD is heading down.

Fed Thair Powell Testifying Before the House Financial Services Committee

Highlights of Powell’s Q&A:

• Inflation is spread more broadly
• Risk of persistent inflation has risen
• Inflation we are seeing is still clearly connected to pandemic
• We just have moved up significantly, but we don’t see that moving up at a troubling rate that would spark inflation
• We need to move on from the word “transitory”
• Risk of higher inflation of moved up
• the economy is very strong
• Price stability and jobs are in tension.  We need to balance them.  We will use the tools to make sure high inflation does not become entrenched
• You are seeing higher inflation across the world

Selling AUD/USD

• Higher inflation is mostly due to reopening of the economy
• Our forecast is for inflation to come down meaningfully in the second half of next year
• I think it is likely inflation will come down then
• We cannot act like we are sure that will happen with inflation and next year
• We have to use our policy tools to tackle range of possible inflation
• Inflation has been more persistent and higher than expected
• The taper need not be disruptive event in markets; do not expect to have a big impact
• It is appropriate to consider at the next meeting to taper faster to wrap it up earlier
• We are deep into dialogue with big financial firms on climate risk. We see stimulatory aspect of fiscal will diminish and become a headwind next year
• We are looking at another strong year next year in terms of growth
• We also see supply-side rising to meet demand next year, as supply chains become untangled

Treas. Sec Yellen:

• There are still many people particularly low income workers, who don’t feel confident about health consequences of working
• Those people may come back as pandemic recedes
• Many fewer Americans with incomes below $400 K will be audited by IRS under “build back better” plan