AUD/USD Tumbles Through Support Following Yellen’s Hawkish Stance

The dollar gained ground against the Australian dollar on Monday following Friday speech by Fed Chair Janet Yellen in front of the San Francisco Federal Reserve. Yellen said late Friday she was optimistic that the labor market would improve in coming months, though the there was still some way to go on the Fed’s employment goal.

Yellen noted the Fed couldn’t wait until inflation was back to its 2% target before moving on rates, which may well be warranted later this year, thus keeping lift-off timing somewhat open ended and data dependent. On the immediate horizon Yellen will get a chance to more closely examine labor trends this week with the arrival of the March jobs report, which is expected to continue with the pattern of steady healthy 250k average gains and a low 5.5% unemployment rate. All else equal, that should keep the dollar bid, a floor under stocks and yields propped up, depending upon developments in Europe.

Australia’s calendar has the February trade report scheduled for Thursday, which is expected to reveal a worsening in the deficit to -A$1.0 billion in February from -A$980 million in January. Building approvals are scheduled for Wednesday and are seen falling 5.0% in February after the 7.9% bounce in January. The RBA will meet next week on April 7, and the market expects no change in the 2.25% rate setting.

In China, which should effect Australian, the March PMI data is due Wednesday, and is expected to show that the official CFLP print at 49.6 from 49.9 in February, and the HSBC/Markit outcome at 49.2 from 50.7. The contractionary data will highlight the slowing in China’s economy, and could have global ramifications.

The AUD/USD sliced through support near the 10-day moving average and is poised to test target support near the March lows at 0.7560. Momentum is poised to turn negative as the MACD (moving average convergence divergence) index is heading for a sell signal. Resistance is now seen near former support at the 10-day moving average at 0.7760.

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