By: Fawad Razaqzada, Market Analyst
Currency markets sometimes say more through what refuses to move than through what does. The U.S. dollar has held on to its big rally despite weaker-than-expected job openings and consumer confidence data, as expectations of further Federal Reserve tightening and a bond market selloff do more to support the greenback than soft data does to undermine it. That resilience matters well beyond the United States, with the Australian dollar coming under pressure even after the Reserve Bank of Australia raised interest rates by 25 basis points. For traders, the U.S. dollar's ability to shrug off soft numbers has become a gauge of how much Fed tightening remains in play.
Fawad Razaqzada, StoneX Media Market Analyst, has more than 12 years of trading and analysis experience across forex, indices, commodities and cryptocurrencies, combining macroeconomics, technical analysis and price action in his coverage. His analysis of major currency pairs such as AUD/USD tracks how central bank decisions, U.S. economic data and bond market moves feed through to exchange rates.
"The bond market selloff is also providing the greenback an additional boost", one of the key reasons the U.S. dollar has held on to its big rally even as U.S. economic data disappointed. Job openings data came in weaker than expected and, as Razaqzada noted, "we also had consumer confidence numbers, which came in weaker than expected". That combination of soft labor market and sentiment readings has not been enough to dent the greenback. Instead, rising expectations that the Federal Reserve will be forced to tighten further have kept the U.S. dollar supported, with the bond market selloff adding to that support. The U.S. dollar's resilience therefore reads less as a verdict on the U.S. economy and more as a measure of how firmly markets expect the Fed to keep tightening.
U.S. dollar strength is keeping AUD/USD under pressure, even after the Reserve Bank of Australia delivered a unanimous 25-basis-point rate hike. The message from the Australian dollar's weakness is that "the U.S. dollar remains an important driver for this currency pair", Razaqzada said. The RBA governor left the door open to further tightening, citing persistent inflation, resilient demand and a tight labor market, yet those hawkish signals did little to lift the Australian dollar. As a result, AUD/USD is taking more of its direction from shifting Federal Reserve expectations than from the RBA's own decision. According to Razaqzada, the Australian dollar's drop after the hike ended up "highlighting just how much of the bank's hawkish stance was already priced into the markets".
--- Written by Gus Farrow, Senior Manager, StoneX Media
--- Expert: Fawad Razaqzada, StoneX Media Market Analyst
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