AUD/USD falls from daily highs, remains offered around 0.7150 amid modest USD weakness

  • The USD’s modest pullback from multi-year highs caused some short covering around AUD/USD.
  • Stronger US PCE and a softer risk tone helped the USD trim intraday losses and capped the pair.
  • The prospect of rapid rate hikes in the US warrants caution before placing bullish bets on the pair.

The pair AUD/USD maintained its strong intraday recovery gains, just above 0.7150 during the early American session and moved shortly after the US macro data release.

The pair witnessed a short covering bounce on Friday and pulled away from its lowest level since early February around the 0.7055 area touched the previous day amid widespread US dollar weakness. Month-end flows prompted USD bulls to take some profit off the table after the recent strong run to 5-year highs. Apart from this, the USD’s decline lacked an obvious fundamental catalyst and remained limited amid prospects for more aggressive policy tightening by the US central bank.

The Fed is expected to raise interest rates by 50 bps when it meets on May 3-4, and again in June and July, finally raising rates to around 3.0% by the end of the year to curb runaway inflation. The bets were reaffirmed with the publication of the Price Index of Personal Consumption Expenditures (PCE) for March. In fact, the Fed’s favorite gauge of inflation accelerated to the highest level since January 1982 and rose 6.6% year over year in March. This helped offset a slight disappointment in underlying PCE.

Additional details revealed that both personal income and spending increased by 0.5% and 1.11% in March, respectively. This marked the sixth consecutive month of increased revenue and the third consecutive month of increased spending. Aside from this, a softer risk tone helped the safe haven USD trim some of its intraday losses and acted as a headwind for the perceived riskier Aussie. Therefore, it will be prudent to wait for some follow-up buying before confirming that the AUD/USD pair has bottomed out in the near term.

Technical levels

Source: Fx Street

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