AUD/USD bulls eye 0.7100 as Aussie politics, RBA’s Kent join cautious optimism
|- AUD/USD picks up bids towards refreshing two-week top as firmer sentiment, RBA’s Kent join Australia’s political challenge.
- RBA’s Kent hints at the below target Cash Rate for some years, Labour Party retakes Australian command after nine years.
- Risk catalysts, FOMC Minutes will be important for fresh impulse.
AUD/USD grinds higher towards 0.7100 as the market’s firmer sentiment battles political change in Australia, as well as mixed comments from RBA’s Kent, during Monday’s Asian session. That said, the Aussie pair registered the first weekly gain in eight amid the US dollar pullback and improving covid conditions in China at the latest.
Reserve Bank of Australia (RBA) Assistant Governor Christopher Kent hints at a gradual downsizing of the balance sheet during his speech on QE to QT on early Monday. The RBA policymaker also said, “Only around A$4 billion of bonds were maturing this year, with another A$13 billion in 2023.” This also compresses the cash rate as Reuters mentioned, “This abundance of funding in turn means the actual overnight cash rate is trading slightly below the RBA's official target for the cash rate, though usually within 10 basis points of it.”
Read: RBA's Kent: Australia's central bank balance sheet to shrink only slowly
Elsewhere, Australia’s Labour Party wins the latest Federal elections, marking a change in the government and retaking control after nine years of ruling by the Liberal-National Coalition. After being sworn in as 31st Aussie PM, Anthony Albanese promised a "journey of change" but the markets seem to respond with less zeal.
That being said, China’s covid improvement and the repeated Fedspeak backing the 50 bps move seem to underpin the recently firmer sentiment, which in turn favor the AUD/USD prices. However, escalating geopolitical tensions in Europe seem to test the bulls of late.
While portraying the mood, Wall Street closed mixed but the S&P 500 Futures rise 1.0% by the press time. Further, the US 10-year Treasury yields gain 2.8 basis points (bps) to around 2.80% at the latest whereas the US dollar remains pressured.
Looking forward, Quad Leaders' Summit in Tokyo and other risk catalysts are likely to offer immediate directions, not to forget an immediate announcement from the new election Aussie PM. Above all, this week’s PMIs and Minutes of the latest Federal Open Market Committee (FOMC) will be crucial for the fresh impetus.
Technical analysis
A convergence of the descending trend line from early April, as well as the 21-day EMA, guards the AUD/USD pair’s near-term upside around the 0.7075 mark. Pullback moves, however, remain elusive until the quote stays beyond the weekly support line, around 0.7020 at the latest.
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