- AUD/USD fell sharply after jumping to fresh multi-month highs.
- US Dollar Index looks to close above 93.00 with modest daily gains.
- FOMC Chairman Powell introduced average inflation target as new strategy.
The AUD/USD pair fluctuated in a large range on Thursday and now looks to close the third straight day in the positive territory. As of writing, the pair was up 0.35% on the day at 0.7255.
Investors assess changes to the Fed’s policy strategy
Wild swings witnessed in the US Dollar Index (DXY) caused AUD/USD to move sharply in both directions. The initial reaction to FOMC Chairman Powell’s speech at the Jackson Hole Symposium dragged the DXY to a low of 92.42.
However, surging US Treasury bond yields during the American session provided a boost to the USD and allowed the DXY to jump above 93.30. With the market action turning subdued in the last hour, the DXY remains on track to end the day with modest gains above 93.00.
Powell announced that the Fed will adopt average target inflation as part of its new policy strategy and triggered a USD-selling wave. The chairman further clarified that any inflation overshoots will be moderate and helped US T-bond yields gain traction. Commenting on this announcement, Dallas Fed President Robert Kaplan explained that “moderate overshoot” of inflation means 2.25% or 2.5%. At the moment, the 10-year US T-bond yield is up 7.1% on the day at 0.736%.
Meanwhile, the US Bureau of Economic Analysis’ second estimate showed that the real Gross Domestic Product (GDP) in the US contracted by 31.7%, compared to the initial forecast of 32.9%.
There won’t be any significant macroeconomic data releases from Australia during the Asian session and the USD’s market valuation is likely to remain the primary driver of AUD/USD’s action.
Technical levels to watch for