AUD/USD Analysis: Faces rejection near 50-day SMA; remains at the mercy of USD price dynamics

The AUD/USD pair struggles to capitalize on its modest intraday uptick to the 0.6430-0.6435 area, or over a one-week high and faces rejection near the 50-day Simple Moving Average (SMA) on Tuesday. Spot prices retreat to the 0.6400 mark heading into the European session and for now, seem to have stalled the recent goodish recovery move from the YTD low touched last week. The intraday pullback could be attributed to the emergence of some US Dollar (USD) dip-buying, though lacks follow-through in the wake of a generally positive tone around the equity markets.

Despite escalating geopolitical tensions in the Middle East, the overnight dovish remarks by Federal Reserve (Fed) officials boosted investors' confidence. This, in turn, could keep a lid on any further gains for the safe-haven buck and lend support to the risk-sensitive Australian Dollar (AUD). In fact, Dallas Fed President Lorie Logan noted that the progress on inflation was encouraging. Furthermore, Fed Vice Chair Philip Jefferson also sounded less hawkish and suggested the central bank should proceed carefully with any further increases in the benchmark federal funds rate.

The markets were quick to react and trimmed the bets for any further rate increases, which might hold back the USD bulls from placing fresh bets. Apart from this, the recent rise in commodity prices could act as a tailwind for the resources-linked Aussie. Military clashes between Israel and the Palestinian Islamist group Hamas raised fears that a wider conflict could affect the Oil supply and boost demand for the safe-haven Gold price. Furthermore, Copper prices rose to a one-week high, though the gains were limited due to a weak demand in China – Australia's largest trading partner.

This, along with persistent worries about China's ailing property sector and looming recession risks, should cap any optimism in the markets. Moreover, the markets are still pricing in the possibility of at least one more Fed rate hike move by the end of this year. The outlook helps limit the corrective decline in the US Treasury bond yields and the buck. Nevertheless, the mixed fundamental backdrop warrants some caution before placing aggressive directional bets around the AUD/USD pair. Traders might also prefer to wait on the sidelines ahead of this week's important releases.

The US Producer Price Index (PPI), along with the FOMC meeting minutes, is due for release on Wednesday. This will be followed by the latest US consumer inflation figures on Thursday, which will influence market expectations about the Fed's future rate hike path and provide a fresh directional impetus to the Greenback. Apart from this, traders will take cues from Chinese inflation figures on Friday to determine the near-term trajectory for the AUD/USD pair. In the meantime, the USD price dynamics will be looked upon to grab short-term opportunities on Tuesday.

Technical Outlook

From a technical perspective, bullish traders might now wait for a sustained strength beyond the 0.6430-0.6435 region, or the 50-day SMA, before placing fresh bets. The AUD/USD pair might then accelerate the positive move and aim to reclaim the 0.6500 psychological mark. This is closely followed by the 0.6510-0.6515 supply zone, which if cleared decisively will suggest that spot prices have formed a near-term bottom and pave the way for additional gains. The subsequent short-covering rally could lift the pair towards the 100-day SMA barrier, currently pegged around the 0.6565 region.

On the flip side, weakness below the 0.6400 mark is more likely to find some support near the overnight swing low, around the 0.6345-0.6340 region. A convincing break below could make the AUD/USD pair vulnerable to sliding further towards the 0.6300 mark. Some follow-through selling, leading to a subsequent break through the YTD low, around the 0.6285 zone, will be seen as a fresh trigger for bearish traders. Spot prices might then decline further below mid-0.6200s, towards the next relevant support near the 0.6210-0.6200 area.