- AUD/USD regains some positive traction on Thursday, though the upside potential seems limited.
- The USD bulls take a brief pause near a three-month peak and offers some support to the major.
- Looming recession risks and the RBA’s dovish shift to act as a headwind for the Australian Dollar.
- Bets for a 50 bps Fed rate hike in March underpin the USD and might contribute to capping gains.
The AUD/USD pair attracts some dip-buying on Thursday and steadily climbs back above the 0.6600 mark during the Asian session. The US Dollar consolidates its recent strong gains to over a three-month peak and turns out to be a key factor lending some support to the major. That said, expectations for more aggressive rate hikes by the Federal Reserve, along with looming recession risks, should act as a tailwind for the safe-haven buck and keep a lid on any meaningful upside for the risk-sensitive Aussie. Apart from this, the Reserve Bank of Australia's (RBA) dovish shift on Tuesday suggests that the path of least resistance for spot prices remains to the downside and warrants caution for aggressive bullish traders.
On the second day of his testimony to the US Congress on Wednesday, Fed Chair Jerome Powell reiterated that interest rates would have to go higher and possibly faster to tame stubbornly high inflation. This lifted bets for a jumbo 50 bps lift-off at the next FOMC policy meeting on March 21-22, which remains supportive of elevated US Treasury bond yields and might continue to offer support to the Greenback. Meanwhile, the prospects for further tightening the Fed add to worries about economic headwinds stemming from rapidly rising borrowing costs. Adding to this, fading hopes for a strong economic recovery in China tempers investors' appetite for riskier assets and should cap gains for the AUD/USD pair.
Furthermore, the RBA signalled earlier this week that it might be nearing the end of its rate-hiking cycle. The speculations were fueled by the monetary policy statement, wherein the central bank changed a reference from “further increases in rates” to “further tightening of monetary policy” would be needed. This, in turn, adds credence to the near-term negative outlook for the AUD/USD pair and suggests that any subsequent move up is more likely to get sold into. Traders now look to the US economic docket, featuring the release of Challenger Job Cuts and the usual Weekly Initial Jobless Claims. The focus, however, will remain on the US monthly employment details, popularly known as the NFP report, due on Friday.
From a technical perspective, the post-RBA slump confirmed a fresh bearish breakdown through a short-term trading range support near the 0.6700 mark and supports prospects for further losses. Moreover, Relative Strength Index (RSI) on the daily chart has also recovered from oversold territory. That said, the YTD low, around the 0.6670-0.6665 region, which coincides with the 61.8% Fibonacci retracement level of the rally from the October 2022 low, could lend some support to the AUD/USD pair. Some follow-through selling could pave the way for a slide towards testing the 0.6600 round-figure mark. The latter should act as a strong base for spot prices, which if broken decisively will set the stage for an extension of the downward trajectory.
On the flip side, any subsequent recovery beyond the overnight swing high, around the 0.6625-0.6630 area, is more likely to attract fresh sellers near 50% Fibo. level, around the 0.6660-0.6665 region. This, in turn, should cap the AUD/USD pair near the 0.6690-0.6700 horizontal support breakpoint. That said, a sustained strength beyond might trigger a short-covering move and lift spot prices to the 0.6770-0.6780 hurdle. This is closely followed by the 0.6800 confluence, comprising the 200-day SMA and the 38.2% Fibo. level, which if conquered might shift the near-term bias in favour of bullish traders.
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. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Follow us on Telegram
Stay updated of all the news
EUR/USD closes in on 1.0800 on broad USD weakness
EUR/USD preserves its bullish momentum and continues to push higher toward 1.0800 on Tuesday. The positive shift witnessed in risk sentiment, as reflected by the positive opening in Wall Street, doesn't allow the US Dollar to find demand and helps the pair keep its footing.
GBP/USD stays in red around mid-1.2100s
GBP/USD continues to trade in negative territory at around 1.2250 on Tuesday despite the broad-based US Dollar weakness. Investors seem to be refraining from betting on Pound Sterling strength ahead of the Fed's and BOE's policy announcements.
Gold falls toward $1,950 as US yields push higher
Gold price extended its daily slide and declined below $1,960. The benchmark 10-year US Treasury bond yield is up nearly 3% on the day above 3.5% on improving risk mood, forcing XAU/USD to stay under bearish pressure ahead of Fed's policy decisions on Wednesday.
If Fed’s money printer goes brrr… will Bitcoin price hit $1 million?
Bitcoin has taken front and center stage after it restarted its 2023 rally in March. This resurgence of buying pressure pushed BTC to nine-month highs.
FX thoughts for the week
Do central banks face a conflict between their inflation mandate and financial stability? The markets are still grappling with this question and confidence in the financial sector has not fully recovered. For now, central banks are responding with a conditional no.