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18.05.2022 07:48

AUD/USD flirts with weekly top above 0.7000 as market optimism dwindles

  • AUD/USD struggles to extend three-day uptrend, grinds higher of late.
  • Fed’s Evans pushes for an ‘expeditious’ rate hike to 2.25-2.50% neutral range.
  • US dollar weakness, hawkish RBA Minutes and covid optimism in China previously favored bulls.
  • Aussie Wage Price Index for Q1 2022 will be crucial considering RBA’s 40 bps talks.

AUD/USD seesaws around the weekly high, pausing a three-day rebound from the two-year low, as it takes rounds to 0.7030 during Wednesday’s Asian session.

The Aussie pair’s latest inaction could be linked to the lack of positive sentiment in the market, mainly triggered by the fresh fears of the US Fed’s faster rate hikes. Also challenging the AUD/USD buyers is the anxiety ahead of the quarterly Wage Price Index from Australia.

Recent comments from Chicago Fed President Charles Evans seem to have weighed on the market’s mood by renewing fears of a faster rate hike as the policymaker said, “(the Fed) Should raise rates to 2.25%-2.5% neutral range 'expeditiously'.” On Tuesday, Fed Chair Jerome Powell and a generally-hawkish St Louis Fed President James Bullard pushed for a 50 bps rate hike and weighed on the USD.

It’s worth noting that chatters of 40 basis points (bps) of a rate hike by the Reserve Bank of Australia (RBA), spread via the Minutes of the latest RBA meeting, underpinned the AUD/USD pair’s upside momentum the previous day. On the same line were headlines suggesting Shanghai’s nearness to reversing the covid-led activity restrictions. Also favoring the quote were headlines suggesting more investments from China and firmer prices of equities, as well as commodities.

That said, the Wall Street benchmarks closed positive even if the US 10-year Treasury yields rose nearly 10 bps to 2.99% at the latest. The S&P 500 Futures struggle, however, around 4,090 by the press time.

Moving on, Aussie Wage Price Index for Q1 2022, expected 0.8% QoQ versus 0.7% prior, will be important for immediate direction amid hawkish concerns over RBA. Following that, the US housing numbers and risk catalysts will be crucial for trading impetus.

Technical analysis

A clear upside break of the 10-DMA level of 0.6984, as well as lows marked during January 2022 surrounding 0.6965, directs AUD/USD buyers toward a monthly resistance line near 0.7080.

 


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