AUD / USD returns above 0.7300 as the dollar continues to decline

• AUD / USD has broken above 0.7300 in recent trading and is now looking to test resistance from the uptrend dating back to November.
• The pair has benefited from the recent weakness in the USD and may struggle to gain more if the dollar stabilizes.

In the last hours, the pair AUD/USD It has returned above the significant 0.7300 level and appears to be on track to mount a retest of an uptrend that has been limiting price action since late November at 0.7325. For now at 0.7315, the pair is trading around 0.4% on the session as a weak dollar provides continued tailwinds. The recent decline in the US dollar appears to be out of sync with recent fundamental developments, which most would normally interpret as an uptrend in the USD. These include the recent aggressive shift in the Fed’s rhetoric toward accelerated tightening in 2022, last Friday’s tight labor market figures, and Wednesday’s consumer price inflation data.

The recent decline appears to be rooted in position adjustment (profiting from overcrowded long positions) or a contraction of long positions, rather than reflecting broader central bank / economic issues. That suggests that the dollar could soon bottom out. Calculating when exactly that will happen can be challenging, although technicals suggest that the dollar index should find support at 94.50 (currently around 94.70). That suggests that further rally for the major G10 / USD currencies may be capped going forward, suggesting that AUD / USD may find it difficult to break above the uptrend resistance and towards 0.7350.

Later, the main focus for the currency markets on Thursday will be on the Senate hearing of the candidate for Vice President of the Fed, Lael Brainard, starting at 15:00 GMT and any other statement by another member of the Fed Members of the Fed have recently been supporting the notion of multiple rate hikes in 2022 and a possible start to a quantitative tightening, as the Fed’s Patrick Harker did earlier in the session.

Technical levels