The Australian Dollar (AUD) continued its downward trend against the US Dollar (USD) on Monday, influenced by a cautious market sentiment. Oil prices remain steady, hovering above $100, while speculation grows that the Federal Reserve (Fed) will raise interest rates on Wednesday. The AUD/USD pair has dropped from last week’s peaks around 0.7240 to session lows just above the support zone near 0.7110, which is now facing pressure as the US trading session approaches.
Increasing expectations for a quarter-point rate increase from the Fed on Wednesday, and possibly another before the end of the year, stem from US Consumer Price Index data released on Friday indicating that inflation is consistently exceeding the Fed’s 2% target.
On the other hand, crude oil prices are lingering above the significant $100 mark, particularly due to the increasingly complex situation in the Middle East. Series of attacks on commercial vessels have nearly closed the Strait of Hormuz, and the Iran-supported Houthis have threatened to blockade the Bab el-Mandeb Strait. This route is vital for oil exports from Gulf nations, and its closure would necessitate rerouting through the Suez Canal, which would significantly drive up freight costs.
Technical Analysis: Bears may challenge key support around 0.7110
AUD/USD is currently at 0.7128, maintaining a somewhat positive short-term outlook, although the critical support level around 0.7110 is under strain. Momentum indicators observed on intraday charts indicate increasing bearish momentum, with the 4-hour Relative Strength Index (14) showing slightly oversold conditions, and the Moving Average Convergence Divergence (MACD) remaining in negative territory. This suggests that any bullish efforts might need to be cautious until momentum stabilizes.
The trading range’s lower boundary spans from the August 20 low at 0.7105 to the September 2 low near 0.7120, which also corresponds to the 38.6% Fibonacci retracement of the July-September upswing. A sustained breakthrough of these levels could pave the way toward the August 19 low at about 0.7065, followed by the lows observed on August 11 and 13, and the 61.8% Fibonacci retracement around 0.7040.
Conversely, bulls will face resistance at Friday’s high of 0.7187 before reaching the noted 0.7240 area.
