AUDUSD dives further and approaches 0.6400 in a cautious market mood

The Aussie has gone through a significant pullback on Wednesday, with the pair extending its reversal from 0.6550 high on Tuesday to 0.6420 so far as investors’ appetite for risk waned.

Cautious markets awaiting the results of the US elections

The market mood soured on Wednesday, with the world stock indexes trading lower while the US Dollar and Treasury bonds picked up as the market awaits the results of the US mid-term elections. In this context, the risk-sensitive Australian Dollar has lost about 1.4% on the day after having rallied beyond 3% over the previous three days.

In the US, with votes still being counted, the Democrats have achieved better-than-expected results, although the race to control the Congress is tight, which leaves President Biden’s economic agenda in the air.

In the macroeconomic front, with a thin calendar today, the focus is on the release of US CPI figures due on Thursday. With the market hyper-sensitive to Fed monetary policy expectations, any surprise in the US inflation figures might trigger a significant increase in Dollar volatility.

Earlier today Richmond Fed President Barkin affirmed that the inflation fight ‘may lead to a downturn” as, he says, rate increases are challenged by artificial elements such as “high consumer savings, lack of labor supply." These comments have eased bullish pressure on the USD.

AUDUSD: Defense of 0.6210 support is crucial – SocGen

From a technical perspective, FX analysts at Société Générale point out to the 0.6210 level to maintain the recent up move: “A bounce is not ruled out; the upper band of the channel near 0.6680/0.6720 and 0.6900 could be near-term resistances (…) In case the pair fails to hold recent higher trough at 0.6270, one more leg of downtrend could materialize towards 0.6100 and projections of 0.5980.”

Technical levels to watch