- AUD/USD jumped to a new yearly high in reaction to the aggressive comment from the RBA on Tuesday.
- The Ukraine crisis underpinned commodities and further benefited the resource-linked Australian dollar.
- Technical buying above 0.7600 also contributed to the strong intraday move higher.
The pair AUD/USD it maintained its strong tone offered during the middle of the European session and now appears to have entered a bullish consolidation phase. The pair was last seen trading in the 0.7630 region, or the highest level since June 2021.
The pair added to the previous day’s positive move and gained strong follow-up traction on Tuesday in reaction to a more dovish comment from the Reserve Bank of Australia (RBA). Unsurprisingly, the Australian central bank decided to keep the key rate at a record low, but abandoned its commitment to be patient with policy tightening.
In the accompanying policy statement, the RBA noted that the domestic economy remains resilient and spending is recovering following the omicron setback. Markets reacted quickly and began pricing in the first rate hike in over a decade during the third quarter. This, in turn, provided a strong boost to the Australian dollar.
Aside from this, the prospect of more Western sanctions on Russia continued to act as a tailwind for commodity prices, which was seen as another factor that benefited the resource-linked Aussie. Indeed, French President Emmanuel Macron pushed for tougher sanctions on Russia following reports of atrocities in the Ukrainian city of Bucha.
The combination of supportive factors, coupled with subdued US dollar price action, pushed the AUD/USD pair to a new year-to-date high, carrying with it some short-term trading stops near 0.7600. This, in turn, confirmed a short-term bullish breakout through an ascending channel extending from below 0.7000 levels and supporting prospects for further gains.
That said, a slightly overbought RSI could prevent bulls from placing further bets amid expectations that the Fed will tighten monetary policy at a faster pace to combat high inflation. It is worth mentioning that markets are anticipating a 100bp Fed rate hike move over the next two meetings, which was bolstered by rising US Treasury yields.
Therefore, the market’s focus will remain glued to the FOMC Monetary Policy Meeting Minutes, due for release on Wednesday. However, the short-term setup favors bullish traders, suggesting that any significant pullback could still be seen as a buying opportunity. Traders are now looking forward to the US ISM Services PMI for some near-term opportunities.
Technical levels
Source: Fx Street
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