AUD/USD Outlook: Bulls turn cautious ahead of FOMC on Wednesday, upside potential intact
Premium|Take advantage of 50% OFF on your first month.
Start your subscription and get access to all our original articles.
You have reached your limit of 5 free articles for this month.
Get Premium without limits for only $9.99 for the first month
Access all our articles, insights, and analysts.
UNLOCK OFFER- AUD/USD edges lower during the Asian session on Monday, though the downside seems limited.
- A softer risk tone acts as a headwind for the risk-sensitive Aussie and contributes to the downtick.
- Bets for smaller Fed rate hikes keep the USD bulls on the defensive and should limit deeper losses.
The AUD/USD pair extends its sideways consolidative price move for the third straight day and remains confined in a range through the Asian session on Monday. The uncertainty over a recovery in the Chinese economy - amid the worst yet COVID-19 outbreak in the country - continues to weigh on investors' sentiment. This is evident from a generally softer tone around the Asian equity markets, which benefits the US Dollar's relative safe-haven status and acts as a headwind for the risk-sensitive Aussie. That said, any meaningful USD gains remain elusive amid firming expectations for a less aggressive policy tightening by the Fed.
In fact, the markets seem convinced that the US central bank will soften its hawkish stance and deliver a smaller 25 bps at the end of a two-day monetary policy meeting on Wednesday. The bets were reaffirmed by Friday's release of the Personal Consumption Expenditures (PCE) Price Index from the US, which added to signs of easing inflationary pressures. Other US macro data released recently, however, pointed to a resilient economy and backed the case for the Fed to keep raising borrowing costs. Hence, investors will closely watch the Fed's stance on future rate hikes, which will drive the USD and provide a fresh directional impetus to the AUD/USD pair.
Investors this week will also confront the release of the closely-watched US monthly employment data - popularly known as the NFP report on Friday. In the meantime, rising odds for an additional rate hike by the Reserve Bank of Australia (RBA) in February, bolstered by the stronger domestic Q4 CPI report, might underpin the Australian dollar. This, in turn, should lend support to the AUD/USD pair and help limit any meaningful corrective pullback, at least for the time being. Moving ahead, there isn't any major market-moving economic data due for release on Monday, leaving spot prices at the mercy of the USD price dynamics and the broader risk sentiment.
Technical Outlook
From a technical perspective, last week's move beyond the 61.8% Fibonacci retracement level of the April-October 2022 downfall comes on the back of the recent breakout through the very important 200-day SMA. Moreover, the recent move up from the October 2022 swing low has been along an upward-sloping channel, which points to a well-established bullish trend. This, in turn, supports prospects for a further near-term appreciating move.
Hence, any meaningful corrective slide below the 0.7065-0.7060 immediate support could be seen as a buying opportunity and remain limited near the 0.7000 psychological mark. A convincing break below the latter might prompt some technical selling and drag the AUD/USD pair back towards the 0.6900 mark, coinciding with the 50% Fibo. level. This is closely followed by the lower boundary of the ascending channel, currently around the 0.6880 region, which if broken might shift the near-term bias in favour of bearish traders.
On the flip side, the daily swing high, around the 0.7120 area might act as an immediate resistance ahead of the multi-month peak, around the 0.7140-0.7145 zone. A sustained strength beyond has the potential to lift the AUD/USD pair further and allow bulls to reclaim the 0.7200 mark for the first time since June 2022. The momentum could get extended further towards the next relevant hurdle near the 0.7265 region en route to the 0.7300 round figure.
- AUD/USD edges lower during the Asian session on Monday, though the downside seems limited.
- A softer risk tone acts as a headwind for the risk-sensitive Aussie and contributes to the downtick.
- Bets for smaller Fed rate hikes keep the USD bulls on the defensive and should limit deeper losses.
The AUD/USD pair extends its sideways consolidative price move for the third straight day and remains confined in a range through the Asian session on Monday. The uncertainty over a recovery in the Chinese economy - amid the worst yet COVID-19 outbreak in the country - continues to weigh on investors' sentiment. This is evident from a generally softer tone around the Asian equity markets, which benefits the US Dollar's relative safe-haven status and acts as a headwind for the risk-sensitive Aussie. That said, any meaningful USD gains remain elusive amid firming expectations for a less aggressive policy tightening by the Fed.
In fact, the markets seem convinced that the US central bank will soften its hawkish stance and deliver a smaller 25 bps at the end of a two-day monetary policy meeting on Wednesday. The bets were reaffirmed by Friday's release of the Personal Consumption Expenditures (PCE) Price Index from the US, which added to signs of easing inflationary pressures. Other US macro data released recently, however, pointed to a resilient economy and backed the case for the Fed to keep raising borrowing costs. Hence, investors will closely watch the Fed's stance on future rate hikes, which will drive the USD and provide a fresh directional impetus to the AUD/USD pair.
Investors this week will also confront the release of the closely-watched US monthly employment data - popularly known as the NFP report on Friday. In the meantime, rising odds for an additional rate hike by the Reserve Bank of Australia (RBA) in February, bolstered by the stronger domestic Q4 CPI report, might underpin the Australian dollar. This, in turn, should lend support to the AUD/USD pair and help limit any meaningful corrective pullback, at least for the time being. Moving ahead, there isn't any major market-moving economic data due for release on Monday, leaving spot prices at the mercy of the USD price dynamics and the broader risk sentiment.
Technical Outlook
From a technical perspective, last week's move beyond the 61.8% Fibonacci retracement level of the April-October 2022 downfall comes on the back of the recent breakout through the very important 200-day SMA. Moreover, the recent move up from the October 2022 swing low has been along an upward-sloping channel, which points to a well-established bullish trend. This, in turn, supports prospects for a further near-term appreciating move.
Hence, any meaningful corrective slide below the 0.7065-0.7060 immediate support could be seen as a buying opportunity and remain limited near the 0.7000 psychological mark. A convincing break below the latter might prompt some technical selling and drag the AUD/USD pair back towards the 0.6900 mark, coinciding with the 50% Fibo. level. This is closely followed by the lower boundary of the ascending channel, currently around the 0.6880 region, which if broken might shift the near-term bias in favour of bearish traders.
On the flip side, the daily swing high, around the 0.7120 area might act as an immediate resistance ahead of the multi-month peak, around the 0.7140-0.7145 zone. A sustained strength beyond has the potential to lift the AUD/USD pair further and allow bulls to reclaim the 0.7200 mark for the first time since June 2022. The momentum could get extended further towards the next relevant hurdle near the 0.7265 region en route to the 0.7300 round figure.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.