- Improved risk appetite and more supportive commodity market conditions are helping the risk/commodity-sensitive Aussie weather the latest USD advances.
- AUD/USD has pared its earlier losses and is back above 0.7100, although still a bit lower today.
- Ahead of the Fed and RBA meetings next week, the bears are targeting yearly lows just below 0.7000.
Better risk appetite in U.S. equity markets and stabilization in the broader commodity complex is helping the risk- and commodity-sensitive Aussie weather the latest advances in the U.S. Dollar and outperform the Euro, the pound and yen. AUD/USD last traded just above the 0.7100 level, down around 0.3% on the day, having pared earlier losses that saw the pair hit its lows lows since early February at 0.7060.
Currency volatility remains high, with the US Dollar clearly the winner and, although better on Thursday, the general tone of risk appetite in recent weeks has been weak as investors worry about the weakening of the global growth, central bank tightening, geopolitics and China’s lockdown risks. As for growth fears, first quarter US GDP figures released earlier in the session were not pretty and showed a surprise drop in output, although analysts attributed this to higher imports and the slowdown in the build-up of stocks.
Nonetheless, against this backdrop, many AUD/USD bears will continue to target a test of yearly lows below 0.7000 in the coming weeks. The Fed will likely raise interest rates by 50 basis points next week, likely signal that more 50 basis point moves are coming, and announce plans for monetary tightening. This could easily keep the USD rallying, analysts suspect.
But one fact that could make a break below 0.7000 a bit more difficult to muster is the fact that the RBA could also raise interest rates next week, more than a month earlier than most analysts expected. barely a week ago. Spicy Australian consumer price inflation figures for the first quarter of 2022 on Wednesday are the reason for the hawkish shift in policy expectations.
A 15 basis point rate hike to 0.25% is now fully priced in and rates are expected to end the year at 2.5%, roughly in line with Fed interest rates. If the RBA meets or even exceeds the hawkish hype, it diminishes the argument for AUD/USD to decline in the near term, suggesting that 0.7000 could become a key support zone.