April 25, 2024

AUD/USD Steps Back Near Post-RBA Rise in the Leadoff to US FOMC Publication

Pair Gains More Positive Traction

The AUD/USD pair consolidated on its constant intraday advance on Wednesday. It climbed to a new daily height close to the 0.7135 area as it headed to the North American session. The combination of several factors aided the pair in having some positive pull. 

The positive pull gained on Wednesday came for the second day in a row, getting close to the overnight gains. There was an increase in the domestic reports that came in and gave support to the Australian Dollar. This is against the background of a hawkish interest rate increase from the Reserve Bank of Australia.

AUD/USD price chart. Source TradingView

It should be remembered that the Reserve Bank of Australia surprised the market on Tuesday by raising official lending rates. The rates came up by 25 basis points from an unprecedented low point of 0.10% to 0.35%. The sudden move of the Reserve Bank of Australia gave a signal of more rates to come.

Again, the reduced price action around the US Dollar also became a factor that served as a tailwind to spot prices. There was a positive mood around US stocks that undermined the safe-haven status of the US Dollar. It, nevertheless, benefitted the Australian Dollar, which is perceived to be riskier.

The US Dollar’s slide is, however, cushioned in the midst of heightened expectations that the Federal Reserve will implement an aggressive policy. The expected policy direction is a means of fighting escalating inflation rates, according to the central bank. The spate of increased interest rates would have increased the rates by 3.0% towards the end of the year.

The Rate and Balance Sheet 

The reality of the interest rates was screwed in by increased bond yields of the US Treasury. It is supposed to act as a tailwind for the US Dollar and put a lid on more gains for the pair. It is a necessary move as the market expects the final decisions from the FOMC meeting.

After the Federal Reserve announces the 50 basis points interest rate as expected, it is expected to outline its balance sheet reduction plans. The central bank has been under pressure to cut down its $9 trillion balance sheet. The market’s focus will then be on complimentary policy statements if the Fed is going to further increase rates if the Dollar weakens.

The speech of the Fed Chairman, Jerome Powell, is expected to offer further clarity on short-term US Dollar dynamics. The interest rate increases will also do the same, no matter the level they come at. They will also help to give further direction to the AUD/USD currency pair.

While the wait is on, traders will take a few things from the economic docket in the US on Wednesday. The docket features the publication of the US ADP data about employment in the private sector. It also contains reports on the ISM Services Purchasing Managers’ Index.

Besides, the risk sentiment in the general money market would increase demands for the US Dollar. It would also create some opportunity to trade around the AUD/USD currency pair.

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