- AUD/USD reverses part of the weekly downside.
- The weak tone in the Greenback favoured the pair’s upside.
- China is expected to end its tariffs on Australian wine.
The renewed, albeit slight, selling pressure around the US Dollar (USD) encouraged AUD/USD to set aside the last couple of negative sessions and reclaim the area beyond the key 0.6600 barrier on Wednesday.
Meanwhile, the Greenback’s recovery appears to have struggled to follow through, allowing for some weakness in the USD Index (DXY), which receded to the saub-103.00 region despite additional increases in US yields across various timeframes.
In addition, price action around the Dollar continued to monitor the ongoing speculation regarding the Federal Reserve’s (Fed) anticipated initial interest rate cut, projected for June. The recent gain of momentum in the Greenback was further fueled by February’s unexpected uptick in US inflation figures.
The bounce in the Aussie dollar managed, albeit temporarily, to ignore the persistent downward pressure on iron ore prices, attributed to rising stockpiles in China, which in turn reflect heightened uncertainty in its housing sector.
Concerning China’s economic developments, they are likely to influence the AUD. Although potential stimulus measures could provide temporary relief, sustained improvements in economic indicators are crucial for strengthening the Australian currency and potentially initiating a notable uptrend in AUD/USD. Still around China, the country has announced it could lift ongoing tariffs on Australian wine, all amidst the improved relations between Sydney and Shanghai.
Additionally, the cautious stance of the Reserve Bank of Australia (RBA), which remains one of the last G10 central banks to start trimming its interest rates, serves as a limiting factor for the pair’s downside potential. Furthermore, the RBA does not exhibit urgency in lowering rates, yet subdued consumer spending aligns with market expectations of approximately 50 bps in rate cuts this year, likely beginning in August.
Given the disparity in the timing of the RBA and the Fed’s easing cycles, the Aussie dollar could gather momentum later in the year, potentially leading to further gains in AUD/USD. That said, once surpassing the December 2023 peak of 0.6871, the pair may set its sights on the significant milestone of 0.7000 in the foreseeable future.
AUD/USD daily chart
AUD/USD short-term technical outlook
If the AUD/USD breaks through the March peak of 0.6667 (March 8), a challenge to the December 2023 high of 0.6871 (December 28) may be on the horizon, followed by monthly tops of 0.6894 (July 14) and 0.6899 (June 16), all before the important 0.7000 barrier.
However, if sellers regain the initiative, spot may find early support around the March low of 0.6477 (March 5), which comes before the 2024 low of 0.6442 (February 13). Breaking below this level might lead to a visit to the 2023 bottom of 0.6270 (October 26), followed by the round level of 0.6200 and the 2022 low of 0.6169 (October 13).
It is worth mentioning that the AUD/USD’s upward trend should continue as long as it maintains above the crucial 200-day SMA, today at 0.6560.
On the 4-hour chart, the door now seems open to the resurgence of the upside momentum. Against that, there is immediate hurdle at 0.6667, ahead of 0.6728 and 0.6871. On the other hand, further losses might put the pair on track to retest the 200-SMA at 0.6543, then 06477, and finally 0.6442. Furthermore, the MACD remains in the positive zone, and the RSI has climbed above 62.
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