Key Talking Points:
- AUD/USD bounces back from FOMC selloff
- Powell returns to bearish rhetoric after markets react to hawkish FOMC
AUD/USD has recovered nicely from the selloff in risk-on currencies on the back of the Fed meeting last week, but the pair is struggling to overcome bearish pressure at 0.7555. Powell’s statement to Congress yesterday served to put a dent in the US Dollar’s bullish reversal as his statement was taken as being dovish once again.
It could be that the FOMC views the reaction to their updated dot plot projections as too hawkish for their liking and they are trying to center the rhetoric around transitory inflation once again. For Powell and Williams the job data is still of concern as there seems to be a reluctance to return to work despite a large increase in vacancies.
A continued dovish message from the Fed will likely underpin AUD/USD performance as commodity-linked riskier currencies outperform the US Dollar. My projection in this case would be for the pair to trade above 0.76 in the coming weeks, likely holding to a range as we saw back in March and April this year.
Short-term momentum is turning bullish but sustainable gains are questionable at the moment. The 4-hour chart shows how the past advances have been corrected and taken back below 0.7555 so it will be key to see if today’s push is able to hold above this area. If so, we may see increase resistance at 0.7570 before attempting to breach the 0.76 line, at which point bullish momentum is likely to build.
AUD/USD 4-hour chart
Looking at the moving averages on the Daily chart, the shorter time-frames continue to head lower whilst the 200-day SMA is flattening out, which is skewing risk to the downside in the longer run. This may attract further selling pressure in an attempt to bring AUD/USD below 0.74. If so, 0.7341 is an interesting area where support could arise, which would be taking the pair to its lowest level since December 2020.
AUD/USD Daily Chart
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— Written by Daniela Sabin Hathorn, Market Analyst
Follow Daniela on Twitter @HathornSabin
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