AUD/USD climbs sharply above 0.6900 ahead of Fed’s Powell appearance

The Australian Dollar (AUD) recovered some ground vs. the US Dollar (USD) after the Reserve Bank of Australia (RBA) raised rates by 25 bps in the Asian session, which triggered a jump to fresh two-day highs of 0.6951. Nevertheless, solid US economic data increased the Fed’s likelihood of further rate hikes. Hence, the AUD/USD retreated some but is still up 0.52, trading at 0.6920.

AUD/USD is still underpinned by the Reserve Bank of Australia’s policy decision

The AUD/USD is holding to its gains. The RBA’s decision to lift rates to the 3.35% threshold keeps the Aussie Dollar (AUD) positive in the day, clinging to gains above the psychological 0.6900 level. The RBA reiterated that further increases would be needed due to core inflation being higher than expected as the central bank tries to curb elevated inflation to its 2-3% target.

ANZ analysts expect the RBA to continue to raise the cash rate to 3.85%. “Today’s RBA statement spells out that further rate hikes are coming. We continue to expect that the cash rate target will rise another 25bp in March and then to 3.85% by May 2023. We still see the risks to that peak as tilted to the high side given the momentum in inflationary pressure.”

Aside from this, investors’ eyes would dissect each word of the US Federal Reserve (Fed) Chair Jerome Powell, who would cross wires at around 17:00 GMT. Solid US economic data revealed since the first week of February would likely keep the Fed pressured to deliver price stability. January’s staggering employment report has opened the door for further tightening.

In the early morning, Minnesota’s Fed President Neil Kashkari said that he foresees the Federal Fund rate at around 5.4% due to the stronger-than-expected labor market report, which showed that the US central bank needs to keep raising rates.

AUD/USD technical analysis

Technically speaking, the AUD/USD fell to a 5-week low but found support around the 0.6850 area and reclaimed the 50-day Exponential Moving Average (EMA), which rests at 0.6876. Nevertheless, for the AUD/USD to resume its uptrend, it needs a daily close above 0.6948, which would expose the pair to further buying pressure. That said, the AUD/USD next resistance would be the 20-day EMA at 0.6975, followed by the psychological 0.7000 figure, ahead of the February 3 high at 0.7080.