– AUD/USD languishes near a two-week low and is pressured by a combination of factors.
– Reviving bets for additional rate hikes by the Fed underpin the USD and act as a headwind.
– Geopolitical tensions and the RBA’s dovish tilt contribute to capping the risk-sensitive Aussie.
The AUD/USD pair oscillates in a narrow trading band through the Asian session on Monday and languishes near a two-week low touched on Friday. The US Dollar (USD) builds on its recent recovery from over a two-month low and gains traction for the fourth straight day, which, in turn, acts as a headwind for the major. The mostly upbeat US monthly employment details revived bets for additional rate hikes by the Federal Reserve (Fed) and lend support to the Greenback. In fact, the closely-watched NFP report showed that the US economy added 236K new jobs in March against market expectations for a reading of 240K. Furthermore, the jobless rate edged down to 3.5% from 3.6% the previous, while Average Hourly Earnings rose 0.3% during the reported month. The markets were quick to react and are now pricing in a greater chance of a 25 bps lift-off at the next FOMC meeting in May. This, for now, seems to have put a floor under the US Treasury bond yields and continues to lend some support to the buck.
Apart from this, the risk of a further escalation in tensions between the US and China is seen as another factor benefitting the Greenback’s relative safe-haven status against the perceived riskier Australian Dollar. It is worth mentioning that China retaliated against Taiwan President Tsai Ing-wen’s US visit and carried out aggressive military drills around Taiwan on Monday. The de facto US embassy in Taiwan said on Sunday the US has sufficient resources and capabilities regionally to ensure peace and stability. This comes amid worries about a deeper global economic downturn and tempers investors’ appetite for riskier assets. The Aussie is further weighed down by the Reserve Bank of Australia’s (RBA) dovish tilt last week, pausing its rate-hiking cycle following 10 consecutive raises and signaling that inflation had likely peaked. The aforementioned fundamental backdrop suggests that the path of least resistance for the AUD/USD pair is to the downside, though traders seem reluctant to place aggressive bets.
Market participants seem convinced that the Fed will cut rates in the second half of the year and the expectations were fueled by the recent US macro data, which pointed to slowing economic growth. This is holding back the USD bulls from placing aggressive bets and lending some support to the AUD/USD pair ahead of the FOMC meeting minutes, due on Wednesday. This week’s US economic docket also features the release of the latest consumer inflation figures and monthly retail sales data, which if misses estimates will take Fed rate-hike bets off the table. This makes it prudent to wait for strong follow-through selling before positioning for an extension of the pair’s nearly one-week-old downtrend from the vicinity of the 0.6800 round-figure mark amid relatively thin liquidity conditions.
From a technical perspective, last week’s rejection slide from the 100-day Simple Moving Average (SMA) and a subsequent fall below the 0.6660 horizontal support could be seen as a fresh trigger for bearish traders. Some follow-through selling below the 0.6640 area (Friday’s swing low) will reaffirm the negative outlook and drag the AUD/USD pair toward the 0.6600 mark. The downward trajectory could get extended towards the YTD low, around the 0.6565 regions touched in March, before spot prices eventually drop to the 0.6500 psychological mark en route to the 0.6410-0.6400 support.
On the flip side, attempted recovery might now confront stiff resistance near the 0.6700 round-figure mark. This is followed by the very important 200-day SMA, currently pegged near the 0.6745 regions, and the 50-day SMA, around the 0.6775 zone, ahead of the 0.6800 mark, or the 100-day SMA. A sustained move beyond the latter might negate the bearish bias and trigger a short-covering rally. The AUD/USD pair could then surpass an intermediate hurdle near the 0.6835-0.6840 region and climb to the 0.6875-0.6880 zone en route to the 0.6900 mark. The next relevant resistance is seen near the 0.6920 regions, above which spot prices could test the 0.6955-0.6960 hurdle and aim to reclaim the 0.7000 psychological mark for the first time since February 14.