AUD/USD Rebounds as USD Weakens on Fed Expectations
- RBA’s hawkish stance supports Australian Dollar (AUD) against USD
- Fed expected to cut rates, keeping US bond yields low and weakening USD
- Chinese data has minimal impact on bullish sentiment for AUD
- Investors await FOMC decision for further market direction
The AUD/USD pair sees a resurgence in buying pressure at the start of the week, pushing it towards a one-week high near the 0.6730-0.6735 level reached last Friday. The Reserve Bank of Australia (RBA) has maintained a hawkish stance, emphasizing the importance of bringing inflation within the target range of 2-3%. This commitment to price stability, coupled with a weakening US Dollar (USD), has provided strong support for the AUD/USD exchange rate.
Recent reports of lower-than-expected US inflation figures have fueled expectations of a more aggressive rate cut by the Federal Reserve (Fed). Market indicators suggest a high probability of a 50-basis point rate reduction by the Fed in the upcoming week, keeping US Treasury bond yields and the USD Index (DXY) near their lowest levels. Additionally, a positive risk sentiment in the market has further weakened the USD and boosted the demand for riskier assets like the Australian Dollar.
Despite disappointing economic data from China, including slower Retail Sales and Industrial Production growth, the AUD remains resilient. This resilience could be attributed to the overall positive market sentiment towards China and the ongoing trade talks between the US and China.
Outlook and Market Analysis
The fundamental factors currently favor a bullish outlook for the AUD/USD pair, with potential for further upside movement from the recent low around 0.6620. However, investors are likely to exercise caution ahead of the FOMC decision on Wednesday, as this event could significantly impact the direction of the currency pair.
Technical Analysis
From a technical standpoint, the AUD/USD pair has shown strength after bouncing off the key 200-day Simple Moving Average (SMA) and breaking above the 0.6700 level. Oscillators on the daily chart support a bullish bias, suggesting a possible move towards the 0.6765-0.6770 resistance zone, followed by the 0.6800 mark and potentially the August peak at 0.6825.
On the downside, immediate support is seen at 0.6700, followed by the 100-day SMA around 0.6655-0.6650 and the 200-day SMA at 0.6620-0.6615. A break below these levels could shift the momentum in favor of bearish traders, targeting the 0.6570-0.6565 support area and potentially the psychological level of 0.6500.
Daily Chart Analysis
Conclusion
The current market conditions indicate a positive outlook for the AUD/USD pair, driven by a combination of factors such as central bank policies, economic data, and market sentiment. Traders should closely monitor the upcoming FOMC decision for potential volatility and direction in the currency markets.