- AUD/USD gained strong positive traction on Tuesday and soared to a two-week high.
- The dollar’s negative trend and the RBA meeting minutes remained supportive.
- The breakout of the downtrend channel supports the prospects for further short-term gains.
The AUD/USD pair received aggressive calls on Tuesday and capitalized on its recent recovery move from a two-year low around the 0.6680 area hit last week. The moment propelled prices to a two-week high during the first half of the European session, with bulls now expecting sustained strength beyond 0.6900.
The US dollar extended its corrective pullback from a two-decade high and continued to lose ground for the third day in a row. In fact, the dollar index fell to its lowest level since July 6, amid reduced bets on a 100 basis point rate hike by the Federal Reserve in July. This, in turn, was seen as a key factor that acted as a tailwind for the AUD/USD pair.
The Australian dollar gained additional support from the minutes of the meeting of the Reserve Bank of Australia (RBA), expectedly “hawkish”. The RBA noted that the current level of the cash rate is well below the lower range of estimates for the nominal neutral rate. This suggests that further interest rate hikes will be necessary for inflation to return to target over time.
Apart from this, the signs of stability in financial markets further benefited the Aussie. Tuesday’s sharp rally could also be attributed to some technical buying above the upper bound of a month-long downtrend channel. This could have already laid the groundwork for a further short-term appreciation move in the AUD/USD pair.
That said, growing fears of a possible global recession could continue to weigh on investor sentiment and limit any further losses for the dollar, at least for now. Apart from this, the new COVID-19 restrictions in China warrant some caution before placing aggressive bullish bets on the Australian dollar.
Market participants now await US housing market data (building permits and housing starts) to be released later in the first half of the American session. Traders will continue to keep an eye on the broader market risk sentiment which could fuel dollar demand and create short-term opportunities around the AUD/USD pair.
Technical levels
Source: Fx Street
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