The US dollar is noticeably losing its position on the eve of the Economic Symposium in Jackson Hole. Just a few hours left before the speech of Federal Reserve Chairman Jerome Powell, and ahead of this event, the dollar index shows a downward trend. It returned to the area of the 92nd figure during the Asian session, allowing the Australian dollar to overcome the resistance level of 0.7200. But whether the AUD/USD pair will be able to gain a foothold in the 72nd figure is an open question. Everything will depend on Powell's rhetoric. According to the general opinion of analysts, this rhetoric will not be in favor of the US currency – in fact, the greenback was hit by a sell-off for this reason. But, in my opinion, the current situation carries a certain risk. The fact is that investors' overly high expectations of Powell's pessimism may not be met. In this case, the dollar can recover throughout the market, even against the background of relatively dovish rhetoric of the Fed chief.
It is noteworthy that traders ignored the US macroeconomic data yesterday. Although the report on orders for durable goods turned out to be significantly better than expected. The total volume of orders jumped by 11.2% in July, demonstrating positive dynamics for the third consecutive month. Whereas in March, the strongest growth rate of the indicator was last recorded March 2019. Excluding transport, the indicator increased by 2.4%, also significantly exceeding the forecast values. However, the dollar ignored such data, which means that all macroeconomic reports have now faded into the background.
Spotlight on Powell. It is expected that during his speech today, he will talk about revising the strategy of the US central bank. In one of his previous interviews, the Fed chief admitted the possibility of adopting a "compensatory strategy" in which the central bank would allow inflation to exceed the 2% target in good conditions in order to compensate for periods of slow price increases. In other words, the Fed will try to compensate for long periods of low inflation with periods of higher price increases. Today, Powell will try to convince Americans that higher inflation will benefit them in the long run. The transition to an inflation targeting policy will put pressure on the US currency. Indeed, in the context of the prospects for monetary policy, this means that the Fed will not consider raising the interest rate until inflation exceeds the two percent barrier and settles above this target.
Moreover, several analysts believe that the Fed chief may "cement" his promise to keep interest rates at the current record low. In particular, the regulator can completely exclude the increase in rates until unemployment falls below a certain level. And here it is worth recalling that the US labor market is recovering rather unevenly. First of all, remember the increase in the number of initial applications for unemployment benefits. This indicator has been steadily declining for 11 weeks (starting in May), reflecting the recovery in the US labor market. But then the weekly indicators began to come out in disarray, often exceeding the forecast values. This happened last week: according to forecasts, the number of initial applications should have grown by 930,000. But in reality, the indicator jumped 1,106,000. Taking into account such dynamics, we can assume that the August Nonfarm data will be worse than the July release, as key indicators are two weeks behind the reports on applications for unemployment benefits.
In other words, if Powell tied the prospects for rate hikes to key macro indicators, while setting more or less clear targets for the unemployment rate, the dollar will come under pressure again, and, accordingly, under a sell-off throughout the market. It is also worth noting that if the Fed's new strategy turns out to be too abstract (i.e., there are no clear guidelines), then in this case, the greenback will be under pressure.
But if Powell does not voice the aforementioned guidelines, but limits himself only to the theses already voiced earlier, the dollar will significantly strengthen its positions throughout the market. Even if his speech bears a dovish character (in the current conditions, there is no need to talk about hawkish rhetoric).
If we directly talk about the AUD/USD pair, then the 72nd figure is at stake here. At the end of the day, traders will either gain a foothold in this price area, or move at least to the bottom of the 71st price level - to the lower line of the BB indicator on the daily chart.
It is also worth noting that the Australian dollar has received indirect support from the latest releases. Thus, the volume of capital expenditures in the private sector in Australia decreased by -5.9% in the second quarter. The seasonally adjusted value in fixed prices measures business sentiment through investment activity. A negative result was recorded today, it turned out to be much better than preliminary forecasts. According to most experts, this indicator should have dropped to -8.9%. A similar situation has developed with yesterday's release, which reflected the number of commissioned construction projects. This indicator fell in the second quarter to only -0.7%, while overall expectations were much lower - at around -6.5%.
In other words, although the macroeconomic statistics of Australia are not encouraging with growth, they are not disappointing with the projected slowdown rates. But in the context of upcoming events, this is not so important: in the medium term, the dynamics of the AUD/USD pair will completely depend on the dynamics of the US currency, which, in turn, will be guided by Powell.
