The AUD/USD pair climbed to about 0.7090 during the early hours of trading in Asia on Thursday. Traders are closely monitoring the implications of the Federal Reserve’s interest rate hike and comments made by former President Donald Trump. Later today, the US Initial Jobless Claims data is expected to be released.
The Fed raised interest rates by 0.25% for the first time in three years, now at a range of 3.75%-4.0%, which was anticipated by many. Fed Chair Kevin Warsh mentioned that the increase was necessary due to persistently high inflation, describing it as a “sober” and “responsible decision.”
Warsh hinted that further rate increases might be needed to combat rising prices. Current money markets reflect nearly a 50% probability of an additional Fed rate hike in October, based on the CME FedWatch tool.
“That’s quite hawkish. If the chair perceives the policy as still accommodative, then there’s more work ahead,” stated Michael Gapen, who is the chief US economist at Morgan Stanley.
In contrast, Trump has urged the US central bank to reduce interest rates to 1% or less, asserting, “We are ‘carrying’ almost every country in the world, and that cannot continue.” He expressed these views in a post on Truth Social.
The Reserve Bank of Australia (RBA) has maintained an Official Cash Rate (OCR) of 4.35%, following three rate increases earlier this year. There’s now a nearly 76% probability assigned by the markets that the RBA will raise the OCR to 4.60% in their next meeting, according to the RBA Rate Tracker.
The International Monetary Fund (IMF) has advised that the RBA needs to be prepared for interest rate hikes, as inflationary risks remain a concern. They also suggested that the government could help reduce inflation through spending cuts.
Aussie downside bias remains as UOB focuses on 0.7100 support
Analysts at UOB Group are maintaining a cautious outlook on the AUD/USD pair in the medium term. They expect that “while further weakness isn’t out of the question, short-term conditions are oversold, and AUD needs to close below 0.7100 before a move to 0.7050 can materialize.” They also believe that “the likelihood of AUD dropping below 0.7100 will stay in place as long as it remains under the ‘strong resistance’ at 0.7175,” with no changes made from their previous evaluation.
Technical Analysis: AUD/USD shows a negative trend in the short term
On the daily chart, AUD/USD exhibits a bearish short-term signal, as prices are below the midline of the 20-day Bollinger Bands. Additionally, the 100-day simple moving average (SMA) is positioned just beneath the market, providing initial support. Momentum appears to be slowing down, with the 14-day Relative Strength Index (RSI) dipping into the low 40s, which suggests a reduction in bullish pressure, rather than outright oversold conditions.
Resistance can be found at the lower Bollinger band near 0.7095, followed by the middle Bollinger SMA at approximately 0.7166 and the upper band close to 0.7240, creating a broad ceiling over current levels. On the downside, the 100-day SMA at 0.7080 acts as the first support level; breaching this threshold could likely pave the way for lower daily closes, further reinforcing a bearish sentiment.
