- AUD/USD pulls back from the multi-month highs hit on Monday, though it lacks continuation.
- A softer risk tone benefits the safe-haven USD and weighs on the risk-sensitive AUD.
- Expectations of lower Fed rate hikes weigh on the USD and help limit the pair’s decline.
The AUD/USD finds some support near the 0.6940 zone and stops its intraday slide from the highest level since August 17 played earlier this Monday. The pair is currently hovering around the 0.6970 zone, virtually unchanged for the day, and is influenced by US dollar price dynamics.
The DXY dollar index, which measures the greenback’s performance against a basket of currencies, is rebounding nicely from 7-month lows and prompting some selling around AUD/USD. A softer risk tone amid concerns about a deeper global economic downturn benefits the safe-haven US dollar and steers money flows away from the Australian dollar, sensitive to risk. That being said, speculation that the Fed may be nearing the end of its rate hike cycle limits any meaningful rise in the USD.
Investors now seem convinced that the US central bank will soften its hawkish stance given the signs of easing of inflationary pressures. In fact, the latest US CPI report, released last week, showed consumer prices falling in December for the first time in more than two and a half years. This, in turn, raised expectations for a 25 basis point Fed rate hike in February, which continues to act as a headwind for the dollar and helps limit a deeper corrective pullback for the AUD/ USD, at least for now.
Besides, Australian dollar is supported by increasing odds of a further interest rate hike by the Reserve Bank of Australia (RBA) in February, bolstered by stronger inflation figures released last week. Therefore, it is prudent to wait for strong selling before confirming that the AUD/USD has topped out any time soon. Traders are also awaiting China’s macroeconomic data to be released on Tuesday.
AUD/USD technical levels
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
