The Australian Dollar (AUD) has dipped by 0.23%, trading at approximately 0.6950 against the US Dollar (USD) during the European trading session on Thursday. This decline reflects a challenging environment for the Aussie as it struggles with a cautious market sentiment.
As of now, S&P 500 futures have fallen by 0.27%, approaching 7,780, highlighting a risk-averse climate among investors. The appeal of riskier assets seems to have waned, sparked by concerns that the rise in US bond yields could become more pronounced. Currently, the 10-year US bond yields have increased by 0.7%, nearing 5.33% during European trading.
Analysts over at Danske Bank have pointed out that the rise in US bond yields appears to be part of a longer-term trend, influenced not just by the supply of Treasuries, but also by increased bond issuance from major tech firms. They further noted that there’s potential for both 10-year and 30-year Treasuries to reach 6%, as investors might demand a higher premium for long-term securities, emphasizing concerns about needed term premiums rising to accommodate future issuances.
Regarding monetary policy, financial markets do not anticipate the Reserve Bank of Australia (RBA) to implement interest rate hikes in its upcoming November meeting. Current market expectations suggest around a 27% likelihood of a consecutive rate increase to 4.85% at the next RBA Board gathering, according to the ASX Rate Tracker. This year, the RBA has already lifted interest rates by one percentage point to a current rate of 4.6%.
Meanwhile, the ongoing elevation of US bond yields is supporting the strength of the US Dollar. At present, the US Dollar Index (DXY), which tracks the value of the Greenback against six major currencies, is trading close to its annual peak of 102.54 reached earlier this week.
AUD/USD Technical Analysis
On the daily chart, AUD/USD is positioned at 0.6954, indicating a bearish outlook in the short term as the pair remains below the 20-period Exponential Moving Average (EMA) at 0.7023. Following a previous upward trend, it has now dipped below this short-term indicator, while the Relative Strength Index (RSI) stands at 33.9, under the neutral benchmark of 50, suggesting persistent downward pressure rather than an oversold situation.
On the upside, the psychological barrier at 0.7000 is a crucial level to watch, followed by the 20-day EMA around 0.7023, which could act as a dynamic resistance. Conversely, the key support level lies at the October 1 low of 0.6904; falling below this would expose the pair to the June 30 low of 0.6865.
