- AUD/USD attracts sellers on Friday as the USD stalls its corrective slide from a multi-month high.
- Bets for smaller Fed rate cuts, geopolitical risks and the US political uncertainty underpin the USD.
- Traders now look to the US macro data for short-term opportunities heading into the weekend.
The AUD/USD pair meets with a fresh supply on Friday and drops back closer to over a two-month low during the early part of the European session on Friday amid the emergence of some US Dollar (USD) dip-buying. The USD Index (DXY), which tracks the Greenback against a basket of currencies, stalls the overnight corrective pullback from its highest level since July 30 as investors seem convinced that the Federal Reserve (Fed) will proceed with modest rate cuts. This, along with the US political uncertainty and Middle East tensions, turn out to be key factors offering support to the buck.
The S&P Global reported on Thursday that its flash US Composite PMI Output Index, which tracks both the manufacturing and services sectors, rose to 54.3 in October from the previous month's final reading of 54.0. The data suggested that the economy started the fourth quarter on a strong footing, which, along with the recent upbeat US macro data, forced investors to continue scaling back their expectations for a more aggressive policy easing by the Fed. This had been a key factor behind the recent upsurge in the US Treasury bond yields and continues to act as a tailwind for the USD.
Meanwhile, the latest poll indicates a tight race between Vice President Kamala Harris and the Republican nominee Donald Trump. Moreover, investors remain concerned that the spending plans of Vice President Kamala Harris and the Republican nominee Donald Trump will further increase the deficit. With less than two weeks to go before the November 5 US presidential election, this adds to a layer of uncertainty, which might continue to push the US bond yields higher. This, in turn, favors the USD bulls and suggests that the path of least resistance for the AUD/USD pair is to the downside.
Apart from this, persistent geopolitical risks stemming from the ongoing conflicts in the Middle East might further benefit the Greenback's relative safe-haven status and contribute to driving flows away from the risk-sensitive Aussie. Market participants now look forward to the US economic docket – featuring the release of Durable Goods Orders and the revised Michigan Consumer Sentiment Index – for some impetus. Apart from this, the US bond yields, along with the broader risk sentiment, will influence the USD and produce short-term trading opportunities around the AUD/USD pair.
Technical Outlook
From a technical perspective, some follow-through selling below the 0.6620-0.6615 area will confirm a breakdown through the very important 200-day Simple Moving Average (SMA). Given that oscillators on the daily chart are holding deep in the negative territory, the AUD/USD pair might then accelerate the fall towards the 0.6565 intermediate support en route to the 0.6500 psychological mark.
On the flip side, the overnight swing high, around the 0.6660 area, now seems to act as an immediate hurdle ahead of the 0.6700 round figure. The latter coincides with the 100-day SMA support breakpoint, above which a bout of a short-covering move could lift the AUD/USD pair to the 0.6755 area, or the 50-day SMA. A convincing breakout above the said barriers might shift the near-term bias in favor of bullish traders.
AUD/USD daily chart
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