AUD/USD Current Price: 0.6584
- AUD/USD receives two punches, one from the RBA and the other from Fed’s Powell.
- RBA raises rates again, says inflation has likely peaked; Governor Lowe to speak on Wednesday.
- US Dollar jumps as market participants consider the possibility of a 50 bps hike from the Fed at the next meeting.
- Lowe’s speech and US ADP Employment report are likely to keep volatility elevated.
The AUD/USD collapsed on Tuesday, on both a weaker Aussie and a stronger US Dollar across the board. The first punch came from the Reserve Bank of Australia (RBA) meeting, which send the pair below the critical 0.6700 level and after Powell’s testimony, it dropped below 0.6600. AUD/USD bottomed at 0.6582, the lowest level in almost four months. AUD/NZD tumbled to 1.0740, the weakest since mid-January.
The RBA hiked interest rates for the 10th consecutive time by 25 basis points to 3.6%, as expected. The message was slightly dovish, with the central bank explaining that when and how much further rates can go, will be decided on incoming data. After the meeting, markets priced in a lower terminal rate, closer to 4%.
More volatility ahead is warranted and could be in either direction. On Wednesday, RBA Governor Philip Lowe will deliver a speech at the Financial Review Business Summit, followed by a Q&A session. Traders will watch closely the event for more clarity about the RBA guidance and the potential pause at next month’s meeting.
Ahead of the Asian session, USD’s momentum is strong, trading at weekly highs across the board supported by a hawkish Powell. In a hearing before the US Senate, he spoke about the possibility of largest interest rate hikes amid the latest round of US economic data. He warned that inflationary pressures are higher than anticipated. On Wednesday, he will testify again, but no more surprises are expected. The focus will be on the ADP employment report. On Friday will be the turn of Nonfarm payrolls.
AUD/USD short-term technical outlook
Technical factors contributed to the bearish acceleration in AUD/USD after breaking the critical area of 0.6700. The pair has not found a bottom and despite short-term indicators pointing at oversold levels, no signs of stabilization are seen. The pair is trading below 0.6600 and the next relevant support on the daily chart is seen at the 0.6530/40 area.
A rebound toward 0.6630 could be seen by traders as an opportunity to sell AUD/USD. However, a firm return above 0.6630 should favor some consolidation before a new leg lower. As long as the pair remains under 0.6780, the outlook is bearish.
Support levels: 0.6575 0.6530 0.6500
Resistance levels: 0.6620 0.6650 0.6690
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