Aussie Rally Takes A Breather

Republished By Plato

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The Australian dollar is in negative territory today after an impressive rally. AUD/USD is trading at 0.6487, down 0.27%.

US dollar steadies after selloff

The US dollar has been in retreat since Friday, after a mixed nonfarm payroll report raised the likelihood of the Fed easing up in December and raising rates by just 0.50%, rather than 0.75%. The Australian dollar took full advantage of the US dollar selloff, rising over 200 points in a 3-day rally. AUD/USD rose to a 6-week high on Tuesday, but it’s hard to see the US dollar continuing to weaken much further. The Federal Reserve is sticking to its hawkish script and said at last week’s meeting that the terminal rate would be higher than previously anticipated. As well, with a gloomy global outlook, risk appetite will be under pressure, making the US dollar more attractive to investors.

The Australian dollar faces other headwinds as well. China, Australia’s largest trading partner, is experiencing a slowdown as the country is yet to exit its strict zero-Covid policy. The RBA has eased up on rates, with two straight hikes of just 0.25%, even though inflation hasn’t shown signs of peaking. With the Fed expected to deliver hikes of 0.50% or 0.75%, the US/Australia rate differential is widening, which will weigh on the Australian dollar.

The US midterms remain inconclusive, with tight races in both the House and the Senate. The Republicans were expected to easily take the House, but the race is tighter than expected. The Senate may not be decided for weeks if a runoff is required in Georgia. Any fluctuations in the currency markets are likely to be short-lived, with investors looking ahead to Thursday’s CPI report.

AUD/USD Technical

There is resistance at 0.6549 and 0.6631
AUD/USD has support at 0.6411 and 0.6329

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A highly experienced financial market analyst with a focus on fundamental analysis, Kenneth Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in several major online financial publications including Investing.com, Seeking Alpha and FXStreet. Based in Israel, Kenny has been a MarketPulse contributor since 2012.