- AUD/USD scales higher for the second straight day and hits a one-week high on Thursday.
- Sliding US bond yields, a positive risk tone weighs on the USD and offers support to the pair.
- Recession fears, dovish RBA minutes could act as a headwind for the risk-sensitive Aussie.
The AUD/USD pair builds on this week’s rebound from a nearly one-month low and gains traction for the second successive day on Thursday. The momentum lifts spot prices to a one-week high and is sponsored by the emergence of fresh selling around the US Dollar. The upbeat mood – as depicted by a generally positive tone around the equity markets – undermines the safe-haven buck and benefits the perceived riskier Aussie. Apart from this, softer US Treasury bond yields further contribute to keeping the USD bulls on the defensive and offer additional support to the major.
Despite a more hawkish commentary by the Federal Reserve last week, investors expect the US central bank to pivot to something more neutral. This, in turn, drags the yield on the benchmark 10-year US government bond away from the monthly peak touched on Wednesday and weighs on the greenback. That said, looming recession fears – amid a surge in COVID-19 cases in China and geopolitical risks – should act as a tailwind for the USD and keep a lid on the AUD/USD pair. In the latest development surrounding the Russia-Ukraine saga, Russia said that there is no chance of peace talks.
The Kremlin further added that the continued arms supplies by Western allies to Ukraine would lead to a deepening of the ongoing conflict. This comes after the White House announces to provide $1.85 billion in military aid to Ukraine and Ukrainian President Volodymyr Zelensky visits Washington on Wednesday. Apart from this, dovish Reserve Bank of Australia (RBA) minutes released on Tuesday, showing that policymakers considered leaving rates unchanged at the December meeting, warrant caution for bulls. This might further contribute to capping gains for the AUD/USD pair.
The focus, however, remains on the US Core PCE Price Index (the Fed’s preferred inflation gauge), due on Friday. Market participants now look forward to the US economic docket, featuring the releases of the final Q3 GDP print and the usual Weekly Initial Jobless Claims data. This, along with the US bond yields, will influence the USD price dynamics and provide some impetus to the AUD/USD pair. The focus, however, remains on the US Core PCE Price Index (the Fed’s preferred inflation gauge), due on Friday, which will play a key role in driving the USD during the year-end holiday season.
From a technical perspective, failure to find bearish acceptance below the 100-day SMA earlier this week and a subsequent move beyond the 0.6730-0.6735 barrier support prospects for further gains. Moreover, oscillators on the daily chart have again started gaining positive momentum and add credence to the constructive outlook. Hence, some follow-through strength, back towards the 0.6800 mark, looks likely a distinct possibility.
The momentum could get extended towards the 0.6865-0.6870 hurdle, above which the AUD/USD pair could make a fresh attempt to reclaim the 0.6900 round figure. The latter coincides with a technically significant 200-day SMA and should act as a pivotal point for the AUD/USD pair. A sustained strength beyond will set the stage for a move towards the 0.7000 psychological mark with some intermediate resistance near the 0.6955-0.6965 region.
On the flip side, the 0.6735-0.6730 resistance breakpoint now seems to protect the immediate downside ahead of the 0.6700 mark. Any further decline might continue to attract some buyers near the 100-day SMA, currently around the 0.6660-0.6655 region. This is followed by the monthly low, around the 0.6630-0.6625 area touched on Tuesday, which if broken decisively will mark a fresh bearish breakdown. The AUD/USD pair might then turn vulnerable to weaken further below the 0.6600 mark and test the next relevant support near the 0.6530-0.6525 horizontal zone.