- AUD/USD fails to maintain its intraday gains amid some buying around the dollar.
- Expectations of an aggressive Fed rate hike and high US bond yields continue to act as a tailwind for the dollar.
- Cautious sentiment further benefits the safe-haven dollar and weighs on the risk-sensitive AUD.
The pair AUD/USD it gives back its intraday gains and falls below the psychological level of 0.6500 during the first half of the European session. At the time of writing, the pair holds in the area of daily lows at 0.6480losing -0.10% on the day.
A combination of supporting factors helps revive demand for the US dollarwhich in turn limits the initial positive movement of the AUD/USD pair, near the 0.6550 resistance zone. Recent hawkish comments from several Fed officials they reaffirmed expectations that the US central bank will tighten monetary policy at a faster pace. Indeed, markets have been pricing in the possibility of another 75 basis point Fed rate hike in November. This remains supportive of elevated US Treasury yields and acts as a tailwind for the dollar. Also, prevailing market caution bolsters the safe-haven US dollar and helps cap the risk-sensitive AUD.
Market sentiment remains fragile in the face of concern that rapidly rising borrowing costs will lead to a deeper global economic downturn. In addition, the risk of a new escalation of the conflict between Russia and Ukraine reduces investors’ interest in riskier assets. This, coupled with the Reserve Bank of Australia’s (RBA) decision to slow the pace of tightening of monetary policy and raising interest rates by 25 basis points earlier this week seems to weigh on the Australian dollar. The fundamental background seems to be leaning in favor of the bears and suggests that the path of least resistance for the AUD/USD pair is to the downside. Therefore, any attempt at recovery risks fading quickly.
However, traders might refrain from opening aggressive positions and would prefer to stay on the sidelines ahead of the release of monthly US employment data on Friday. The popularly known NFP report will play a key role in influencing Fed rate hike expectations. The outlook should help determine the next directional move for the dollar and AUD/USD. Meanwhile, weekly US jobless claims will be released on Thursday. Also, speeches from influential FOMC members and US bond yields will boost demand for the dollar. This, coupled with broader risk sentiment, will be looked at to take advantage of some short-term opportunities.
AUD/USD technical levels
Source: Fx Street
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