- AUD/USD attracts some buying on Thursday and is back towards the 0.7100 level.
- Risk appetite weighs on the safe-haven dollar and benefits the risk-sensitive Aussie.
- Recession fears and aggressive comments from Fed officials the day before could limit USD losses.
- A sustained move above the 0.7100 level is needed to support the prospects for further gains.
The pair AUD/USD attracts some buying near the 0.7060 area on Thursday and rises to a fresh daily high during the European session. However, the pair remains below the level of 0.7100 and from two-month highs reached after Wednesday’s US consumer inflation figures.
The risk appetite It acts as a headwind to the safe-haven US dollar and turns out to be a key factor offering some support to the AUD/USD pair. The report of US CPI weaker than expected, pushed back expectations of more aggressive Fed monetary policy tightening and boosted investor confidence. This is evident from the positive tone around stock marketswhich tends to benefit the risk-sensitive Aussie.
Nevertheless, growing concern about a global economic downturn, coupled with tensions between the US and China over Taiwan, could curb optimism. On the other hand, comments from various Fed officials should help limit deeper dollar losses and limit AUD/USD gains. This, in turn, warrants caution from the pair’s bulls before positioning for any further moves higher, at least for now.
Indeed, Chicago Fed President Charles Evans noted that inflation remains unacceptably high and expect the Fed to continue raising the interest rate to 3.25%-3.50% by the end of the year, and 3.75%-4.00% by the end of next year. Also, Minneapolis Fed President Neel Kashkari stated that the Fed is far from declaring victory over inflation and recommended the 3.9% rate for the end of this year in June economic projections.
Additionally, the Fed is still expected to raise interest rates by at least 50 basis points at the September meeting. This makes it prudent to wait for strength to hold beyond the 0.7100 level before opening further bullish positions around the AUD/USD pair. Market participants are now awaiting the release of the US Producer Price Index (PPI) to gain further momentum at the start of today’s American session.
AUD/USD technical levels to watch
Source: Fx Street
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