US Dollar Still Strong Amid Risk-off Mood, Fed’s Hawkish Hints

The US dollar continues to remain strong, reclaiming the 96 level against other leading currencies; over rising expectations for the Fed to speed up its tapering of monetary stimulus and rate hike plans. At the time of writing, the US dollar index DXY is trading at around 96.04.

The most affected by this sentiment are commodity currencies AUD and NZD; both of which exhibited strong bearish moves against the USD in the Asian session. AUD/USD and NZD/USD are trading at multi-month lows and; have also been impacted by the risk-off mood in global financial markets, which have sent more investors towards the safety of the greenback against; risk-sensitive currencies and instruments instead.

US Dollar

Following Fed Chair Powell’s hawkish comments from earlier this week; analysts have now upgraded their timeline for Fed’s monetary; tightening. They now expect the US central bank to wind up its monthly asset purchases by April 2022 and announce the first rate hike by as soon as June 2022. The first rate hike, although some months away, has already been priced in by markets as well.

Markets are increasingly ;expecting the Fed to be the first among leading central banks to turn hawkish and overturn the monetary easing measures put in place when the COVID-19; pandemic first started early last year. However, with the US economy making a rapid rebound from its pandemic-inflicted weakness and inflation soaring in the US, the Fed has been forced to advance its timeline and reverse its dovish stance sooner than originally planned.

However, the Fed’s plans to advance this move has also turned some economists; hopeful for the RBA to follow suit and announce a tapering of its bond purchase program at its upcoming policy meeting next week and to wind up its QE program by May 2022. Such an announcement could bring the bulls back into the AUD and help it climb higher in the near term.