Australian Dollar rebound offsets the hawkish Fed hike

AUD/USD rebounds near the 0.7110s area on Thursday after the pair spent recent sessions nursing losses on bets for a hawkish Federal Reserve (Fed). At the time of writing, the pair rises by over 0.40%, but the rebound has little to do with anything out of Australia.

The move comes a day after the Fed lifted its benchmark rate by a quarter point to a range of 3.75% to 4.00%, its first increase since 2023. The decision was unanimous, and Chair Kevin Warsh flagged that another hike could arrive before year-end, warning that inflation "is too high and has been for too long". That kind of message would normally support the US Dollar.

Yet the Greenback has softened rather than firmed, and part of the reason is political. Hours after the hike, United States President Donald Trump demanded the Fed slash rates to "1% or less" and posted that borrowing costs should come down "and fast". He said he still backed Warsh but made clear he saw no case for higher rates. The open friction between the White House and the central bank has taken some shine off the Dollar's rate advantage.

Wall Street is steadier on Thursday, with the S&P 500 edging higher and the Nasdaq climbing as Warsh's resolve on inflation reassures investors after the heavy selling the previous day. Better risk appetite tends to favor the Aussie.

A sharp rally in Gold, which has pushed above $4,360 per troy ounce, is adding to the support, since firmer metals prices help commodity-linked currencies like the Australian Dollar.

On another note, Initial Jobless Claims fell to 196K last week, below the 208K expected, pointing to a still-tight labor market that backs the Fed's hawkish stance.

Short-term technical analysis:

On the 4-hour chart, AUD/USD trades at 0.7120, retaining a bearish near-term bias as it holds beneath both the 20-period Simple Moving Average (SMA) at 0.7123 and the 100-period SMA at 0.7173. The pair is attempting to stabilize after recent losses, but the location of price under these key averages suggests rallies remain capped, while the Relative Strength Index (RSI) near 44 hints at modest, rather than aggressive, downside momentum.

On the topside, initial resistance is located at the 20-period SMA at 0.7123, followed by the horizontal barrier at 0.7127, with a stronger cap at the 100-period SMA near 0.7173. On the downside, immediate support appears at 0.7118, ahead of the prior floor at 0.7106, while a deeper slide would expose the next support area around 0.7092.

(The technical analysis of this story was written with the help of an AI tool. Know more.)