AUD/USD Forecast: Bulls have the upper hand above 0.7100 mark amid risk-on/softer USD
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Subscribe to Premium- A combination of supporting factors pushed AUD/USD to over a two-week high on Monday.
- RBA’s hawkish signal, the risk-on mood underpinned the aussie amid modest USD weakness.
- Recession fears, aggressive Fed rate hike bets should limit the USD losses and cap the major.
The AUD/USD pair attracted fresh buying on Monday and prolonged its recent strong recovery move from the lowest level since June 2020, around the 0.6830-0.6825 region touched earlier this month. The Australian dollar continued drawing support from the Reserve Bank of Australia's hawkish signal that a bigger interest rate hike is still possible in June amid the upside risks to inflation. Adding to this, RBA Assistant Governor Christopher Kent hinted at a gradual downsizing of the balance sheet during his speech on the first day of a new week. Furthermore, the upbeat mood in the equity markets undermined the safe-haven US dollar and benefitted the risk-sensitive aussie.
Investors, however, remain worried that a more aggressive move by major central banks to constrain inflation could pose challenges to global economic growth. Adding to this, the Russia-Ukraine war and extended COVID-19 lockdowns in China have been fueling recession fears. This, in turn, should keep a lid on any optimistic move in the markets, which, along with hawkish Fed expectations, favours the USD bulls. Market participants seem convinced that the US central bank would need to take more drastic action to bring inflation under control. Apart from this, a goodish pickup in the US Treasury bond yields supports prospects for the emergence of some USD dip-buying.
Nevertheless, the AUD/USD pair, so far, has managed to stick to its intraday gains and climbed back above the 0.7100 round-figure mark during the Asian session. In the absence of any major market-moving economic releases from the US, the US bond yields and the broader market risk sentiment will continue to play a key role in influencing the USD demand. This, in turn, should provide some impetus to the major and allow traders to grab some short-term opportunities on the first day of the week. Traders will then look forward to the release of the flash PMI prints from Australia and the US on Tuesday. The focus, however, will remain on Wednesday's release of the FOMC meeting minutes.
Technical outlook
From a technical perspective, any subsequent move up is likely to confront resistance near the 0.7140-0.7145 region, or the 38.2% Fibonacci retracement level of the 0.7662-0.6829 downfall. Given that oscillators on the daily chart have just started gaining positive traction, sustained strength beyond would be seen as a fresh trigger for bulls. The AUD/USD pair might then aim to reclaim the 0.7200 round-figure mark and accelerate the momentum towards testing the 0.7245-0.7250 confluence hurdle. The latter comprises the 100-day SMA and the 50% Fibo. level and is closely followed by the very important 200-day SMA. Some follow-through buying would suggest that the pair has bottomed out and pave the way for a further near-term appreciating move.
On the flip side, last week’s swing high, around the 0.7075-0.7070 region, now seems to protect the immediate downside ahead of the 0.7025 area, or the 23.6% Fibo. level. Any subsequent slide might continue to attract some buying near the 0.7000 psychological mark. This, in turn, should help limit the downside near the 0.6950 area, which if broken decisively will negate any near-term positive bias. The AUD/USD pair might then turn vulnerable to weaken further below the 0.6900 mark and test the next relevant support near the 0.6870 region. The downward trajectory could further get extended towards challenging the YTD low, around the 0.6830-0.6825 region, before the pair eventually drops to the 0.6800 mark.
- A combination of supporting factors pushed AUD/USD to over a two-week high on Monday.
- RBA’s hawkish signal, the risk-on mood underpinned the aussie amid modest USD weakness.
- Recession fears, aggressive Fed rate hike bets should limit the USD losses and cap the major.
The AUD/USD pair attracted fresh buying on Monday and prolonged its recent strong recovery move from the lowest level since June 2020, around the 0.6830-0.6825 region touched earlier this month. The Australian dollar continued drawing support from the Reserve Bank of Australia's hawkish signal that a bigger interest rate hike is still possible in June amid the upside risks to inflation. Adding to this, RBA Assistant Governor Christopher Kent hinted at a gradual downsizing of the balance sheet during his speech on the first day of a new week. Furthermore, the upbeat mood in the equity markets undermined the safe-haven US dollar and benefitted the risk-sensitive aussie.
Investors, however, remain worried that a more aggressive move by major central banks to constrain inflation could pose challenges to global economic growth. Adding to this, the Russia-Ukraine war and extended COVID-19 lockdowns in China have been fueling recession fears. This, in turn, should keep a lid on any optimistic move in the markets, which, along with hawkish Fed expectations, favours the USD bulls. Market participants seem convinced that the US central bank would need to take more drastic action to bring inflation under control. Apart from this, a goodish pickup in the US Treasury bond yields supports prospects for the emergence of some USD dip-buying.
Nevertheless, the AUD/USD pair, so far, has managed to stick to its intraday gains and climbed back above the 0.7100 round-figure mark during the Asian session. In the absence of any major market-moving economic releases from the US, the US bond yields and the broader market risk sentiment will continue to play a key role in influencing the USD demand. This, in turn, should provide some impetus to the major and allow traders to grab some short-term opportunities on the first day of the week. Traders will then look forward to the release of the flash PMI prints from Australia and the US on Tuesday. The focus, however, will remain on Wednesday's release of the FOMC meeting minutes.
Technical outlook
From a technical perspective, any subsequent move up is likely to confront resistance near the 0.7140-0.7145 region, or the 38.2% Fibonacci retracement level of the 0.7662-0.6829 downfall. Given that oscillators on the daily chart have just started gaining positive traction, sustained strength beyond would be seen as a fresh trigger for bulls. The AUD/USD pair might then aim to reclaim the 0.7200 round-figure mark and accelerate the momentum towards testing the 0.7245-0.7250 confluence hurdle. The latter comprises the 100-day SMA and the 50% Fibo. level and is closely followed by the very important 200-day SMA. Some follow-through buying would suggest that the pair has bottomed out and pave the way for a further near-term appreciating move.
On the flip side, last week’s swing high, around the 0.7075-0.7070 region, now seems to protect the immediate downside ahead of the 0.7025 area, or the 23.6% Fibo. level. Any subsequent slide might continue to attract some buying near the 0.7000 psychological mark. This, in turn, should help limit the downside near the 0.6950 area, which if broken decisively will negate any near-term positive bias. The AUD/USD pair might then turn vulnerable to weaken further below the 0.6900 mark and test the next relevant support near the 0.6870 region. The downward trajectory could further get extended towards challenging the YTD low, around the 0.6830-0.6825 region, before the pair eventually drops to the 0.6800 mark.
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