AUD/USD Analysis: Failure near 100/200-DMA warrant caution for bulls, 0.7150 holds the key
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CLAIM OFFER- AUD/USD met with a fresh supply on Wednesday and eroded a part of the overnight gains.
- A fresh leg up in the US bond yields revived the USD demand and prompted fresh selling.
- The downside is likely to remain cushioned ahead of the crucial US CPI report on Friday.
The AUD/USD pair witnessed good two-way price moves on Tuesday and finally settled with modest intraday gains, snapping a two-day losing streak. Investors turned optimistic amid the easing of COVID-19 restrictions in China and expectations that price pressures may start to ease, which could slow the central bank's hiking plans. This was evident from a solid recovery in the US equity markets and triggered a corrective pullback in the US Treasury bond yields, which failed to assist the safe-haven US dollar to preserve its early gains.
Apart from this, a more hawkish Reserve Bank of Australia (RBA) decision was seen as another factor that offered some support to the risk-sensitive aussie. The Australian central bank surprised markets and raised interest rates by the most in 22 years. In fact, the RBA lifted its cash rate by 50 bps to 0.85% and indicated that further tightening is in the pipeline as it battles to restrain surging inflation. The markets were quick to price in the real risk of another 50 bps rise in July and rates to be around 1.5% by August.
Despite the supporting factors, the AUD/USD pair continued with its struggle to make it through the 0.7245-0.7255 strong resistance zone and edged lower during the Asian session on Wednesday. The USD was back in demand amid a fresh leg up in the US Treasury bond yields, which, in turn, exerted downward pressure on the major. The downside, however, is likely to remain cushioned as investors might refrain from placing aggressive bets and prefer to wait on the sidelines ahead of the US consumer inflation, scheduled for release on Friday.
The latest US CPI report will play a key role in influencing the Fed's policy tightening path and the USD price dynamics, which, in turn, should provide a fresh directional impetus to the AUD/USD pair. In the meantime, traders on Wednesday will take cues from the broader market risk sentiment amid absent top-tier economic data from the US. Apart from this, the US bond yields would drive the USD demand and allow traders to grab short-term opportunities around the major.
Technical outlook
From a technical perspective, the overnight bounce from the vicinity of the 0.7150 support favours bullish traders. That said, repeated failures to break through the important moving averages (100 & 200-day SMAs) make it prudent to wait for strong follow-through buying before positioning for any further gains. The said confluence barrier, around the 0.7245-0.7255 region, should act as a pivotal point, above which the AUD/USD pair could aim to reclaim the 0.7300 mark. The momentum could get extended further and lift spot prices to the next relevant resistance near the 0.7340-0.7350 zone.
On the flip side, weakness below the 0.7200 mark might continue to find decent support near the 0.7155-0.7150 region. A convincing break below could trigger some technical selling and drag the AUD/USD pair towards the 0.7100 mark en-route the 0.7025-0.7020 region. This is closely followed by the 0.7000 psychological mark, which if broken decisively would shift the bias in favour of bearish traders. The pair could then fall to the 0.6940 area en-route the 0.6900 mark and the 0.6830-0.6825 region, or the YTD low touched on May 12.
- AUD/USD met with a fresh supply on Wednesday and eroded a part of the overnight gains.
- A fresh leg up in the US bond yields revived the USD demand and prompted fresh selling.
- The downside is likely to remain cushioned ahead of the crucial US CPI report on Friday.
The AUD/USD pair witnessed good two-way price moves on Tuesday and finally settled with modest intraday gains, snapping a two-day losing streak. Investors turned optimistic amid the easing of COVID-19 restrictions in China and expectations that price pressures may start to ease, which could slow the central bank's hiking plans. This was evident from a solid recovery in the US equity markets and triggered a corrective pullback in the US Treasury bond yields, which failed to assist the safe-haven US dollar to preserve its early gains.
Apart from this, a more hawkish Reserve Bank of Australia (RBA) decision was seen as another factor that offered some support to the risk-sensitive aussie. The Australian central bank surprised markets and raised interest rates by the most in 22 years. In fact, the RBA lifted its cash rate by 50 bps to 0.85% and indicated that further tightening is in the pipeline as it battles to restrain surging inflation. The markets were quick to price in the real risk of another 50 bps rise in July and rates to be around 1.5% by August.
Despite the supporting factors, the AUD/USD pair continued with its struggle to make it through the 0.7245-0.7255 strong resistance zone and edged lower during the Asian session on Wednesday. The USD was back in demand amid a fresh leg up in the US Treasury bond yields, which, in turn, exerted downward pressure on the major. The downside, however, is likely to remain cushioned as investors might refrain from placing aggressive bets and prefer to wait on the sidelines ahead of the US consumer inflation, scheduled for release on Friday.
The latest US CPI report will play a key role in influencing the Fed's policy tightening path and the USD price dynamics, which, in turn, should provide a fresh directional impetus to the AUD/USD pair. In the meantime, traders on Wednesday will take cues from the broader market risk sentiment amid absent top-tier economic data from the US. Apart from this, the US bond yields would drive the USD demand and allow traders to grab short-term opportunities around the major.
Technical outlook
From a technical perspective, the overnight bounce from the vicinity of the 0.7150 support favours bullish traders. That said, repeated failures to break through the important moving averages (100 & 200-day SMAs) make it prudent to wait for strong follow-through buying before positioning for any further gains. The said confluence barrier, around the 0.7245-0.7255 region, should act as a pivotal point, above which the AUD/USD pair could aim to reclaim the 0.7300 mark. The momentum could get extended further and lift spot prices to the next relevant resistance near the 0.7340-0.7350 zone.
On the flip side, weakness below the 0.7200 mark might continue to find decent support near the 0.7155-0.7150 region. A convincing break below could trigger some technical selling and drag the AUD/USD pair towards the 0.7100 mark en-route the 0.7025-0.7020 region. This is closely followed by the 0.7000 psychological mark, which if broken decisively would shift the bias in favour of bearish traders. The pair could then fall to the 0.6940 area en-route the 0.6900 mark and the 0.6830-0.6825 region, or the YTD low touched on May 12.
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