US DOLLAR FORECAST: AUD/USD PRICE PIVOTS LOWER, FED CHAIR POWELL CONFERENCE & NEGATIVE INTEREST RATE COMMENTARY IN FOCUS
- AUD/USD pressured lower ahead of a speech from Fed Chair Powell later this week
- US Dollar reversal attempt looks driven by a recalibration of FOMC interest rate expectations
- Spot AUD/USD price action also set to follow the ebb and flow of trader risk appetite
AUD/USD is drifting to the downside as the new trading week gets underway. The Australian Dollar surged more than 15% from its March 18 swing low relative to its US Dollar peer, but AUD/USD price action looks set to face a pivotal test, and could be on the cusp of a broader reversal lower.
| Change in | Longs | Shorts | OI |
| Daily | 5% | 2% | 4% |
| Weekly | 10% | -29% | 0% |
AUD/USD has dropped by about 60-pips since Friday’s close. Recent weakness in spot AUD/USD seems to follow a far-reaching US Dollar rebound on the back of changes in Federal Reserve interest rate expectations.
AUD/USD PRICE CHART: 4-HOUR TIME FRAME (01 APRIL TO 11 MAY 2020)
The implied Fed funds rate flipped negative last week, but since a last-minute speech from Fed Chair Jerome Powell was scheduled for Wednesday, May 13 at 13:00 GMT, benchmark US interest rates have started to edge higher. That said, Fed rhetoric regarding negative interest rate policy, or NIRP, has potential to weigh materially on the US Dollar and AUD/USD price action going forward.
This is considering interest rate differentials contribute largely to fundamental underpinnings of the currency carry trade. Powell could fuel an extended rise in the US Dollar against other major currencies if the Fed Chair pushes back on the prospect of implementing negative interest rates in the United States.
Potential downside in AUD/USD prices could also follow a deterioration in trader risk appetite as coronavirus optimism stalls. Additionally, bearish divergence indicated by the RSI on a 4H candlestick AUD/USD price chart suggests a pullback may loom.
AUD/USD PRICE CHART: DAILY TIME FRAME (31 DECEMBER 2019 TO 11 MAY 2020)
AUD/USD might continue to drift lower toward the 0.6400 price level where month-to-date lows currently reside. This comes subsequent to a rejection at the April 30 swing high near 0.6560, which looks to serve as technical resistance going forward.
If Fed Chair Powell suggests an openness to adopting NIRP as a new unconventional monetary policy tool, however, it may correspond with aggressive US Dollar selling pressure. If materialized, this could help AUD/USD climb toward technical confluence residing around the 0.6690 mark in turn.
Nevertheless, spot AUD/USD remains at risk of a experiencing another sharp drop and potential test of key technical support levels. This is in light of the likely unavoidable coronavirus recession that lingers and still threatens to damage market sentiment. AUD/USD price action also faces notable downside risk from a fresh Trump tariff threat to China.
Read More: US Dollar, Gold, Dow Jones React to Catastrophic NFP Report
-- Written by Rich Dvorak, Analyst for DailyFX.com
Connect with @RichDvorakFX on Twitter for real-time market insight
