- AUD/USD makes a nice recovery from a one-month low in reaction to aggressive RBA minutes.
- Rising expectations for more aggressive rate hikes from the Fed benefit the USD and could limit the pair’s rise.
- Investors are now waiting for the US housing market data and some Fed speech for some additional momentum.
The pair AUD/USD is extending its steady intraday rise at the start of the European session on Tuesday and has reached a new daily high at the level of 0.7400 in the last hour. At time of writing, the pair pulls back near 0.7390, still up 0.54% on the day.
The pair attracted some buying near the 0.7340 50-day SMA region on Tuesday and has now recovered a significant portion of the previous day’s decline to one-month lows. The Reserve Bank of Australia, in the minutes of its April board meeting, warned that rising inflation has likely advanced the timing of the first interest rate hike since 2010. This, in turn, was seen as a key factor offering some support to the Australian dollar, although sustained buying around the US dollar could limit any significant gains for the AUD/USD pair.
In fact, the dollar index DXY soared to its highest level since April 2020 in the middle of the expectations that the Fed would tighten monetary policy at a faster pace to curb the hottest inflation since 1981. In addition to this, St. Louis President James Bullard said on Monday that the US central bank shouldn’t rule out 75 basis point rate hikes. This, coupled with concerns that the worsening Ukraine crisis would put upward pressure on already high inflation, pushed US Treasury yields to a new multi-year high, which should continue to support the USD.
However, the AUD/USD pair, for now, appears to have snapped a four-day losing streak and remains at the mercy of USD price action. Having said that, it will be wise to wait for a strong continuation sell-off before confirming that the recent retracement of the 0.7660 area, the yearly high, is over. Market participants now await the US economic calendar, with the release of building permits and housing starts data at the start of the American session.
Investors will take further cues from a scheduled speech by Chicago Fed President Charles Evans, along with US bond yields, which will boost demand around the dollar. Apart from this, the broader risk sentiment should allow investors to take advantage of some short-term opportunities around the AUD/USD pair.
AUD/USD technical levels
Source: Fx Street