- AUD/USD struggles to capitalize on the overnight strength, though the downside seems cushioned.
- Bets for less aggressive Fed rate hikes continue to weigh on the USD and offer support to the pair.
- China’s COVID-19 woes, weaker commodity prices act as a headwind for the resources-linked Aussie.
- Investors now look forward to the November FOMC meeting minutes for a fresh directional impetus.
The AUD/USD pair extends its sideways consolidative price move through the Asian session on Wednesday and remains confined in a narrow trading band. Investors seem concerned that a new COVID-19 outbreak in China and the imposition of fresh lockdowns will lead to a further slowdown in economic activity. The worries continue to weigh on commodity prices, which, in turn, acts as a headwind for the resources-linked Australian Dollar. The downside, however, remains cushioned amid modest US Dollar weakness in the wake of rising bets for a less aggressive policy tightening by the Fed.
In fact, the current market pricing indicates a greater chance of a relatively smaller 50 bps rate hike at the next FOMC policy meeting in December. This contributes to the ongoing decline in the US Treasury bond yields and continues to weigh on the USD. That said, the recent hawkish comments by several Fed officials suggest that the US central bank is still far from pausing its rate-hiking cycle. This could hold back bearish traders from placing aggressive bets around the greenback and cap any intraday move up for the AUD/USD pair ahead of the release of the November FOMC meeting minutes.
Market participants will look for clues about the Fed's policy outlook and future rate hikes, which, in turn, will play a key role in influencing the near-term USD price dynamics. In the meantime, traders on Wednesday will look to the US economic docket - featuring the release of Durable Goods Orders and the usual Weekly Initial Jobless Claims data - for some impetus. The upside potential for the AUD/USD pair, meanwhile, seems limited amid speculations that the Reserve Bank of Australia (RBA) will stick to its dovish course, the worsening COVID-19 situation and geopolitical risks.
The fundamental backdrop is tilted firmly in favour of bearish traders and suggests that the path of least resistance for the AUD/USD pair is to the downside. Hence, any intraday positive move might still be seen as a selling opportunity and runs the risk of fizzling out rather quickly.
From a technical perspective, spot prices, for now, have managed to hold comfortably above the 0.6600 mark. This is followed by the 0.6560-0.6550 strong horizontal resistance breakpoint, which coincides with the 200-period SMA on the 4-hour chart and should act as a pivotal point. A convincing break below the latter will reaffirm the near-term negative bias and make the AUD/USD pair vulnerable to challenging the 0.6500 psychological mark. Some follow-through selling should pave the way for a fall towards the next relevant support near the 0.6435 area, below which spot prices could test sub-0.6400 levels in the near term.
On the flip side, immediate resistance is pegged ahead of the 0.6700 round figure. A convincing breakthrough is needed to negate the near-term bearish bias. The AUD/USD pair might then make a fresh attempt towards conquering the 0.6800 mark, with some intermediate resistance near the 0.6740-0.6745 region. The momentum could further get extended towards a technically significant 200-day Simple Moving Average, currently around the 0.6845 region.
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