AUD/USD Forecast: Seems vulnerable to weaken further below YTD low, FOMC minutes awaited


  • AUD/USD drifts lower for the second straight day and drops to a nearly four-week low.
  • Looming recession risks and the US debt ceiling woes weigh on the risk-sensitive Aussie.
  • A modest USD pullback fails to lend any support ahead of the FOMC meeting minutes.

The AUD/USD pair remains under some selling pressure for the second successive day on Wednesday and drops to a nearly four-week low during the Asian session. Worries over slowing global growth, particularly in China, along with the lack of progress in talks over increasing the US debt ceiling, continue to weigh on investors’ sentiment and turn out to be a key factor weighing on the Australian Dollar (AUD). Representatives of President Joe Biden and congressional Republicans ended another round of debt ceiling talks without an agreement to raise the government’s borrowing limit. Apart from this, expectations that the Reserve Bank of Australia (RBA) might refrain from hiking in June exert additional downward pressure on the major. Even a modest US Dollar (USD) pullback from a fresh two-month high touched on Tuesday fails to impress bullish traders or lend any support to the pair.

The downside for the USD, meanwhile, seems cushioned by the possibility of further rate hikes by the Federal Reserve (Fed). In fact, investors seem convinced that the US central bank will keep interest rates higher for longer and the expectations were reaffirmed by a more hawkish remarks by several Fed officials this week. This remains supportive of elevated US Treasury bond yields, which, along with the better-than-expected US macro data released on Tuesday, supports prospects for the emergence of some USD dip-buying. The S&P Global’s Composite PMI suggested that the business activity in the US private sector expanded at a strengthening pace in early May. Furthermore, sales of new US single-family homes jumped to a 13-month high in April. Nevertheless, the fundamental backdrop favours the USD bulls and suggests that the path of least resistance for the AUD/USD pair is to the downside.

Traders, however, might refrain from placing aggressive bets and prefer to wait on the sidelines ahead of the release of the FOMC meeting minutes, due later during the US session this Wednesday. The minutes will be closely scrutinized for fresh clues about the Fed’s next policy move, which, in turn, will play a key role in influencing the near-term USD price dynamics and provide some meaningful impetus to the AUD/USD pair. Apart from this, traders will take cues from the US debt ceiling talks, which along with the US bond yields and the broader risk sentiment, will drive the USD demand and contribute to producing short-term opportunities around the major.

Technical Outlook

From a technical perspective, weakness back below the 0.6600 mark could be seen as a fresh trigger for bearish traders and might have already set the stage for further losses. Moreover, oscillators on the daily chart have just started gaining negative traction and validate the bearish outlook. Hence, a subsequent slide towards challenging the YTD low, around the 0.6565 region touched in March, looks like a distinct possibility. Some follow-through selling should pave the way for a fall towards testing the 0.6500 psychological mark en route to the next relevant support near the 0.6430 horizontal zone.

On the flip side, attempted recovery now seems to face some resistance near the 0.6620 area ahead of the 0.6645-0.6650 region and the 50-day Simple Moving Average (SMA), currently pegged around the 0.6680-0.6685 zone. This is closely followed by the very important 200-day SMA, just above the 0.6700 mark, which if cleared decisively could trigger a short-covering rally. The AUD/USD pair might then make a fresh move towards conquering the 100-day SMA, around the 0.6775-0.6780 region, before aiming to reclaim the 0.6800 mark.

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