AUD/USD reclaims 0.7100 after shedding to a new YTD low at 0.7062 on hawkish Powell comments

• AUD/USD reached a new 2021 low at 0.7062 amid Fed’s Chair Powell hawkish comments.
• US short-term bond yields advance, while the 10-year benchmark note falls to 1.449%.
• The US Dollar Index reclaims the 96.00 but keeps in the red, down 0.24%.

After trimming some of last Friday’s losses on Monday, the AUD/USD falls sharply during the day, down 0.34%, trading at 0.7107 at the time of writing. The market sentiment is in risk-off mode, as portrayed by US equities falling sharply on comments of Federal Reserve Chair Jerome Powell, weighed on risk appetite, with the US Dollar Index recovering some earlier losses in the day, down some 0.24%, but reclaimed the 96.00 figure. Meanwhile, the US short-term yields advance, while the US 10-year Treasury yield edges lower, down to 1.449%, a drop of eight basis points.

Investors priced in 50 basis points hikes, after Fed's Chair Powell comments

Money markets futures show almost 59 basis points of rate hikes priced in by the end of the following year. On Friday of last week, investors scaled back some of those bets on the discovery of the new COVID-19 variant as market participants assessed what’s its impact on the economy.

Summarizing some of Fed Chair Powell’s remarks, he said that inflation could no longer be considered “transitory.” He noted that the COVID-19 recent strain the omicron pose “downside risks to employment, economic activity and increasing uncertainty for inflation.”

Powell favors a faster “wrapping up” of the QE’s program and reiterated that he would talk about the need of “speeding up taper” at the December meeting.

That said, in the overnight session, the market sentiment dampened on the back of Moderna’s CEO warning that existing vaccines would be less effective against the South African discovered variant than earlier strains, spurring a drop in equity futures around 5:00 AM London time.

Therefore, AUD/USD trader’s focus would turn to Wednesday economic docket, though throughout the week, the US economic docket could favor USD bulls after Fed’s Chief Powell remarks. On Wednesday, the US docket will unveil the ADP Employment Change for November, a prelude of the Nonfarm Payrolls, to be released on Friday. Further, the ISM Manufacturing PMI for November and Fed speakers, with the Federal Reserve Chair Powell, testifying before the US Congress.

The Australian economic docket will feature the AiG Performance of Manufacturing Index for October and the Gross Domestic Product for the Q3 quarterly and yearly.