- The Minutes from the last Federal Reserve meeting laid the groundwork for a modest rate hike.
- Consequently, the US dollar weakened broadly against most G8 currencies.
- The Australian dollar was buoyed by hawkish comments from the RBNZ and risk momentum.
- AUD/USD is on track to hit the inverted head and shoulders target at 0.6870.
The Australian dollar (AUD) it extended its gains for three straight days and recaptured the 0.6700 level on Thursday, courtesy of the November Federal Reserve Minutes, which sent the US dollar (USD) lower against most G8 currencies. Therefore, AUD/USD is trading at 0.6764, after hitting a daily low of 0.6726, in a light trading session, on the occasion of the Thanksgiving holiday in the United States (US).
Sentiment remains positive, as evidenced by European stocks ending in the green. The release of the Federal Reserve’s Open Market Committee (FOMC) minutes weighed on the dollar as officials agreed to slow the pace of rate hikes. The minutes were dovish as policymakers viewed growth risks as skewed to the downside. In fact, Fed officials acknowledged that the probability of a recession in the United States is 50%.
However, investors should be aware that policy makers have expressed “uncertainty” about the level of rates, which will depend on the data. That being said, caution is warranted as the Federal Reserve would continue to increase borrowing costs.
In terms of data, the US economic calendar on Wednesday was packed. The S&P Global PMIs for November showed signs of recession, mainly the Manufacturing index, which fell to 47.6 from 50.4 in the previous reading. Later, the consumer sentiment report released by the University of Michigan (UOM) came in at 56.9, showing that Americans remain mildly optimistic about the economy. Inflation expectations were largely unchanged.
Initial jobless claims in the US topped last week’s estimates, showing the job market is easing. At the same time, US durable goods orders topped forecasts, signaling consumer resilience amid high inflation and rising borrowing costs.
On the Australian side, the Covid-19 cases in China are likely to keep the Australian dollar (AUD) contained. However, the AUD was bolstered by hawkish comments from the Reserve Bank of New Zealand (RBNZ), which raised rates by 75 basis points on Wednesday. Investors should remember that the Reserve Bank of Australia (RBA) minutes showed that officials are open to either pausing the tightening cycle or raising interest rates again more significantly depending on the data that comes out. are received.
AUD/USD Price Analysis: Technical Perspective
The AUD/USD daily chart shows that the major currency has resumed its uptrend, after testing the 50% Fibonacci retracement at 0.6596 on Monday. Once Australian dollar buyers retook 0.6700, they briefly tested the November high at 0.6797, which, once broken, could send AUD/USD towards the inverted head and shoulders chart pattern target at 0.6870. As an alternate scenario, AUD/USD first support would be 0.6700, followed by the 100-day EMA at 0.6687 and the 38.2% Fibonacci level at 0.6644.
Source: Fx Street