The recent increase in selling pressure on the US Dollar (USD) prompted a significant reversal in the AUD/USD pair on Wednesday, pushing it above the important 200-day Simple Moving Average (SMA) of 0.6556.
This weakening of the US Dollar was further emphasized following a dovish statement by Chief Powell at his press conference, occurring right after the Federal Reserve decided to keep interest rates unchanged, aligning with expectations during its Wednesday meeting.
The rise in AUD/USD on Wednesday was primarily fueled by the Federal Reserve’s actions. However, a drop in copper prices and a slight recovery in iron ore prices somewhat restrained the Australian dollar’s potential for gains.
Additionally, the economic situation in China is likely to continue affecting the AUD. While potential stimulus actions could provide temporary support, consistent improvement in economic metrics is crucial for strengthening the Australian dollar and possibly leading to a significant upward movement in AUD/USD.
Meanwhile, the AUD/USD pair has managed to overcome several sessions of losses, intensified after the Reserve Bank of Australia (RBA) unexpectedly adopted a dovish outlook at its latest meeting. Despite leaving interest rates at 4.35%, the bank surprisingly dropped its tightening bias. This shift in policy from the potential of another rate increase to a stance of considering all options marks a cautious approach by the RBA, particularly noting that wage growth may have reached its peak and household spending continues to be weak due to high inflation and rising interest rates.
Notably, the RBA is among the last of the G10 central banks to evaluate interest rate adjustments.
As the RBA and the Fed are on different schedules for monetary policy changes, the Australian dollar could see momentum later this year, possibly leading to further increases in AUD/USD. Should the pair exceed the December 2023 high of 0.6871, it might aim for the key level of 0.7000 soon.
Short term analysis shows that further upside in AUD/USD could see a break above 0.6667, last saw in March, with the next level of resistance at 0.687. Support is at around 0.6533.
Analysis by Dr Krissy Jones
