Top Regulated Brokers
Shrugging off weak domestic employment data, the Australian dollar is gaining traction as easing Fed rate hike expectations and improving risk appetite drive market sentiment. Monitor these key chart levels.
This pair continued to consolidate within a longer-term trading range in early trade on Tuesday as market participants shrugged off last week’s soft domestic employment data and focused on scaled back bets of a Federal Reserve interest rate hike this month. With a light economic calendar this week, the Aussies dollar’s next move could be shaped by an uptick in risk appetite.
Why Risk Appetite Is Supporting AUDUSD
The AUD/USD currency pair continued its recovery from this month’s low, with an improvement in risk-on appetite overshadowing data last week that pointed to further cooling in the domestic labor market, easing expectations of an early November RBA rate hike. Recent reports of Russian President Vladimir Putin floating the idea of a summit to end the war between Moscow and Kiev and a rebound in growth stocks have placed a cautious tailwind behind the Australian dollar, which typically strengthens on improving global growth prospects. Sentiment for the currency also received a boost earlier this week after RBA Assistant Governor Christopher Kent suggested the current 4.6% cash rate is exerting less downward pressure on inflation than anticipated, keeping the central bank’s longer them hawkish outlook in play.
On the U.S. side, Fed Chair Kevin Warsh last week pointed to strength in the world’s largest economy, though bets for another interest rate rise this month have eased after the 10-year Treasury yield retreated from a 24-year high. According to the CME FedWatch tool, markets expect rates to stay on hold in October but indicate an 80% chance of the central bank’s benchmark funding rate rising 25 basis points in December.
AUDUSD’s Recovery Is Testing Market Conviction
Since forming two comparable lows around the 0.6900 level, the pair has continued to track higher, raising the possibility of a double bottom, a popular chart pattern that indicates a potential bullish reversal. It’s also worth noting that the 50 moving average (MA) has crossed above the 200 MA to form a golden cross, another chart signal that suggests higher prices. More recently, the pair has reclaimed the 200 MA, which now may provide support during dips.
AUD/USD Price Chart Showing Support & Resistance Levels
Where AUD/USD Buyers Could Regain Control
Near-term pullbacks could be short lived, with a key horizontal support line sitting around 0.6955. This area on the chart may attract buying interest near a series of minor peaks and troughs spanning the first half of October.
The bulls’ failure to successfully defend this level could see the pair’s price retrace toward lower support near 0.6935. Traders may look to open long positions in this region around a horizontal line that connects several lows on the chart stretching back to Oct. 1.
The Resistance Zone That Could Challenge AUD/USD
Further buying above the 200 MA could trigger a push to the crucial 0.7005 area. Those who have accumulated positions in the pair at lower prices may seek to lock in profits in this location near a trendline that links the prominent Sept. 24 swing low and Oct. 14 swing high.
A close above this level would pave the way for buying up to around 0.7030. This area would likely provide significant overhead resistance near a range of peaks and troughs on the chart that formed during a consolidation period in late September.
What Could Sustain AUDUSD’s Cautious Recovery
The Australian dollar could continue its cautious move higher this week amid a modest recovery in risk-on appetite driven by reports of a summit to end the Russia- Ukraine war and bounce in global cyclical stocks. Given the light economic calendar over the next few days, the pair’s near-term price action may also be driven by remarks from central bank officials on both sides of the Pacific if they shed any new information on the interest rate outlook.
Sources:
https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html
Ready to trade our analysis of the AUD/USD? Here is our list of the best Forex brokers worth checking out.