Powell prepares to pontificate to policymakers, AUD/USD tests 0.6700 support

Key takeaways

Fed Chairman Jerome Powell is set to testify before Congress this week, where he is expected to signal that interest rates may need to be raised higher than previously estimated due to strong economic data.
Powell's views on the economy and inflation are closely watched by investors, and any hawkish signals he sends could lead to market volatility.
While some policymakers are calling for more aggressive tightening to combat stubbornly high inflation, Powell will need to balance these concerns with the need to avoid damaging the labor market recovery.

Federal Reserve Chair Jerome Powell is preparing to address Congress this week, where he is expected to provide an update on the state of the US economy and the central bank's plans for monetary policy. According to analysts, Powell is likely to signal that interest rates may need to be raised more than previously anticipated in light of recent economic data, which has exceeded expectations in many areas.

Powell's remarks will be closely watched by investors, as any hawkish signals he sends could lead to market volatility. The Fed has already raised rates repeatedly over the last year in response to higher inflation, and some policymakers are calling for more aggressive tightening to combat this persistent problem. However, Powell will need to balance these concerns with the need to avoid damaging the labor market recovery, which has been a bright spot for the Biden administration.

The central bank has set a target of 2% inflation, but the current pace is at 5.4%, which officials argue needs to be brought down to ensure long-term labor market strength. Powell has previously indicated that more rate hikes may be necessary, given the "extraordinarily strong" labor market. However, he will need to strike a balance between highlighting progress made in slowing inflation without job losses, while acknowledging that more work needs to be done as risks to the inflation outlook remain skewed to the upside.

While the majority of policymakers are signaling that the central bank should continue raising rates in more measured 25 basis-point increments, some officials and Fed watchers have suggested a 50 basis-point move should be on the table if inflation fails to slow. San Francisco Fed President Mary Daly ,for example, has stated that further policy tightening, maintained for a longer time, will likely be necessary to put the current episode of high inflation behind us.

It is likely that Powell's semiannual testimony will be his last public remarks before the Federal Open Market Committee next meets on March 21-22. As such, his remarks this week will be closely scrutinized by investors for any signals about the central bank's plans for monetary policy going forward.

AUD/USD technical analysis

AUD/USD is edging lower so far today, with the Aussie struggling in the wake of a softer-than-expected growth target out of China, Australia’s biggest trading partner, and ahead of tonight’s big RBA meeting.

Technically speaking, the pair put in a clear “head-and-shoulders” pattern over the first two months of the year. For the uninitiated, this pattern shows a shift from a bullish trend (higher highs and higher lows) to a bearish trend (lower lows and lower highs), and is often seen at major tops in a market.

If Powell’s comments come off as more hawkish than expected (or the RBA is relatively dovish), AUD/USD could break below its near-term support at 0.6700 and continue toward the measured move objective of the head-and-shoulders pattern near 0.6600. Only a break above previous-support-turned-resistance at 0.6860 would reverse this bearish near-term bias.

Source: StoneX, TradingView

-- Written by Matt Weller, Global Head of Research

Follow Matt on Twitter @MWellerFX

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the market you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.