(Haresh Menghani – FXStreet)
– AUD/USD edges higher for the third straight day and inches back closer to a two-month high.
– The uncertainty over the Fed’s rate hike path undermines the USD and offers some support.
– Recession fears weigh on investors’ sentiment and could act as a headwind for the aussie.
The AUD/USD pair attracted some dip-buying on Thursday and climbed to a fresh two-month high, though the uptick failed near a technically significant 200-day SMA. The latest signs of easing US inflation dragged the US dollar to its lowest level since late June and offered some support to the major. In fact, data released on Thursday showed that the US Producer Price Index unexpectedly fell in July for the first time in more than two years. This followed Wednesday’s softer US CPI report, which revealed that consumer prices were unchanged in July and indicated that inflation may have peaked. This, in turn, forced investors to trim their bets for a 75 Fed rate hike move at the September policy meeting and continued exerting pressure on the greenback.
That said, the recent hawkish comments from several Fed officials suggested that the US central bank would stick to its policy tightening path. San Francisco Fed President Mary Daly said that a 50 bps interest rate hike in September makes sense, though she is open to a bigger rate hike if data warrants. Earlier this week, St. Louis Fed President James Bullard, Chicago Fed President Charles Evans and Minneapolis Fed President Neel Kashkari also backed the case for further interest rate hikes. This, in turn, pushed the yield on the benchmark 10-year US government bond to a three-week high and helped limit the USD losses. Apart from this, a late pullback in the US equity markets underpinned the safe-haven buck and capped the risk-sensitive aussie.
The market sentiment remains fragile amid growing worries about a global economic downturn and US-China tensions over Taiwan. That said, uncertainty over future interest rates held back the USD bulls from placing aggressive bets and assisted the AUD/USD pair to gain some positive traction for the third successive day on Friday. With the USD price dynamics turning out to be a key factor influencing spot prices, traders now look forward to the Preliminary Michigan US Consumer Sentiment Index for a fresh impetus. Apart from this, the US bond yields would drive the USD demand. Traders would further take cues from the broader market risk sentiment to grab short-term opportunities on the last day of the week.
AUDUSD Technical Outlook
From a technical perspective, bulls might now wait for sustained strength beyond the 0.7135-0.7140 confluence hurdle before positioning for any further gains. The said barrier comprises the very important 200-day SMA, the top end of a one-month-old ascending channel and the 50% Fibonacci retracement level of the April-July downfall. A convincing breakthrough should allow the AUD/USD pair to surpass an intermediate resistance near the 0.7170-0.7175 zone and reclaim the 0.7200 mark. The momentum could further get extended and lift spot prices to the next relevant hurdle near mid-0.7200s, or the 61.8% Fibo. level.
On the flip side, any meaningful slide could be seen as a buying opportunity around the 0.7040-0.7035 area, or the 38.2% Fibo. level. This should help limit the downside near the 0.7000 psychological mark. That said, failure to defend the said support levels could make the AUD/USD pair vulnerable to testing the 23.6% Fibo. level, around the 0.6900 mark. The latter coincides with the ascending channel support and should act as a strong base, which if broken decisively would pave the way for further losses. The downward trajectory could then drag spot prices to mid-0.6800s en route to the 0.6800 round-figure mark.
Australian new home sales collapse, Australian equities at risk [Video]
(Clifford Bennett – ACY Securities)
The latest Australian New Home Sales data paints a very bleak picture indeed as to just how comfortable investors are feeling. Meanwhile the external trade outlook continue to darken as well. While there was good news on US Producer Prices it is not over yet for inflation. Which means the Federal Reserve will still be hiking and impacting Australian stock prices too. Why you should play defense.