The AUD/USD pair has surged to a two-and-a-half-week high, supported by a combination of factors that are driving the Australian Dollar higher. The pair is now trading above the key 200-day Simple Moving Average (SMA), signaling potential for further upside momentum if it can breach the 0.6600 resistance level.
One of the key drivers behind the Aussie’s strength is the hawkish comments from Reserve Bank of Australia (RBA) Governor Michele Bullock, who has hinted at potential rate hikes if inflation risks persist. Additionally, stronger-than-expected Chinese inflation figures have also contributed to the Aussie’s gains. China’s consumer prices rose by 0.5% in July, beating expectations and easing concerns about a deeper economic downturn in the region.
Furthermore, a positive risk sentiment in the market, along with growing expectations of a 50 basis points rate cut by the Federal Reserve (Fed) in September, has weighed on the US Dollar (USD) and boosted demand for riskier assets like the Australian Dollar. This has led to a decline in US Treasury bond yields, further pressuring the greenback.
Looking ahead, the focus will now shift to the US Consumer Price Index (CPI) report next week, which could provide further direction for the AUD/USD pair. Overall, the fundamental backdrop remains supportive for the Aussie, with the pair on track to register strong weekly gains.
Risk Sentiment FAQs
In the world of financial markets, “risk-on” and “risk-off” are commonly used terms to describe investor sentiment. During a “risk-on” market, investors are more optimistic and willing to take on more risk by investing in assets with higher potential returns. On the other hand, during a “risk-off” market, investors are more cautious and prefer safer assets with lower risk.
Typically, during a “risk-on” market, stock markets rise, commodities gain value, and currencies of commodity-exporting countries strengthen. In contrast, during a “risk-off” market, bonds and safe-haven currencies like the US Dollar, Japanese Yen, and Swiss Franc tend to perform better.
Currencies like the Australian Dollar, Canadian Dollar, and New Zealand Dollar usually benefit from a “risk-on” market due to their heavy reliance on commodity exports. These currencies tend to rise in value when there is increased demand for commodities.
On the other hand, major currencies like the US Dollar, Japanese Yen, and Swiss Franc tend to outperform during a “risk-off” market due to their status as safe-haven assets. Investors flock to these currencies during times of uncertainty and market volatility.