The AUD/USD pair attracted some dip-buying on Wednesday and rallied around 60 pips from the daily swing lows amid a broad-based US dollar weakness. The longer-dated US Treasury bond yields declined further despite a slightly higher than estimated US CPI print, suggesting that the market is still not convinced about a sustained period of inflation. This was seen as a key factor that weighed heavily on the greenback and provided a goodish lift to the major. The momentum extended through the early part of the trading action on Thursday and pushed the pair to over one-month tops, though lacked any follow-through.
The minutes of the FOMC monetary policy meeting held on September 21-22 revealed that the US central bank remains on track to begin tapering its bond purchases in 2021. Moreover, a growing number of policymakers were worried about the continuous rise in inflationary pressure, forcing investors to bring forward the likely timing of a potential rate hike. The markets now seem to have started betting on the possibility of the so-called lift-off in September 2022 as against December 2022 already priced in. This, in turn, helped limit the USD corrective slide and kept a lid on any meaningful upside for the major.
Apart from this, weaker Australian employment figures for September further acted as a headwind for the aussie. The official data showed that the economy shed more than expected, 138K jobs in September. Moreover, the rise in the unemployment rate, to 4.6% from 4.5% previous, was limited by a fall in the number of people actively seeking a job. This, along with softer Chinese CPI print, collaborated towards capping gains for the major. That said, the risk-on impulse – as depicted by a generally positive mood around the equity markets – continued lending some support to the perceived riskier Australian dollar.
Market participants now look forward to the US economic docket, featuring the release of the Producer Price Index (PPI) and the usual Weekly Initial Jobless Claims. This, along with the US bond yields and scheduled speeches by influential FOMC members, will influence the USD price dynamics later during the North American session. Traders might further take cues from the broader market risk sentiment to grab some short-term opportunities around the major.
From a technical perspective, last week’s sustained move beyond the 0.7315-20 horizontal barrier was seen as a fresh trigger for bullish traders. The subsequent move up validated the breakout and supports prospects for additional gains. Some follow-through buying beyond the 0.7400 mark will reaffirm the constructive set-up and push the pair towards an intermediate resistance near the 0.7440 zone. The momentum could further get extended towards testing September monthly swing highs, around the 0.7475-80 region.
On the flip side, the 0.7345 region now seems to protect the immediate downside. Any further decline might be seen as a buying opportunity and remain limited near the 0.7315-20 resistance breakpoint. This is closely followed by the 0.7300 mark, which if broken decisively will shift the bias in favour of bearish traders. The pair might then accelerate the fall towards the next relevant support near the 0.7225 region before eventually dropping to the 0.7200 round-figure mark.