The AUD/USD currency pair began the trading week with a corrective growth after an impulsive drop to the 0.6640 mark. Last Friday, AUD/USD updated a two-week price low amid the general strengthening of the greenback. Today, the greenback has loosened its grip: the U.S. dollar index demonstrates a downward trend, reflecting a decrease in demand. This situation allowed AUD/USD buyers to return to the borders of the 67th figure to the price barrier of 0.6700. At this price point, the lower border of the Kumo cloud on the D1 timeframe coincides with the average Bollinger Bands line and the Kijun-sen line of the Ichimoku indicator.
If the interest in risk in the market continues to increase, the Aussie will be able to regain lost positions in the coming days and return to the range of 0.6760–0.6800, within which the pair traded until recently. The minutes of the RBA’s May meeting, to be published during the Asian session on Tuesday, could provide additional support to the buyers of the pair.
The Dollar Has Loosened Its Grip
Looking ahead, it is worth noting that it is still too early to write off the U.S. currency: the dollar rally, under certain conditions, can resume with new vigor. However, at the moment, the level of anxiety in the market has decreased against the background of recent statements by U.S. President Joe Biden.
Recall that the surge in risk-off sentiment in the markets was due to two main reasons. Firstly, it is the risk of a U.S. government default. Secondly, the risk of another American bank going bankrupt. Such an information background contributed to the strengthening of the safe dollar, which de facto became the beneficiary of the situation.
Negotiations between Republicans and Democrats last week reached a deadlock. Representatives of the Democratic Party demand to raise the debt ceiling without any preliminary conditions, while the Republican Party insists that the expansion of borrowing powers be accompanied by significant restrictions on budgetary expenditures. When the parties could not agree and split up in the ring, the dollar significantly strengthened its positions, as the protracted confrontation caused fears that the government is actually moving towards default.
However, Biden announced yesterday that negotiations with Congress on raising the debt limit are progressing, and more will be known about their progress “over the next two days.” At the same time, he noted that he is optimistic about the prospects for reaching a compromise. According to Reuters, aides to the U.S. President and the Speaker of the House of Representatives from the Republican Party Kevin McCarthy began to discuss ways to limit federal spending in order to resume negotiations on raising the debt ceiling.
Such a turn of the plot cooled the ardor of dollar bulls. The U.S. dollar index turned downward, and AUD/USD buyers were able to organize a counterattack, rising to the 0.6700 mark. At the same time, tomorrow’s release may provide additional support to the Aussie. We are talking about the minutes of the RBA’s May meeting.
RBA Minutes
Recall that at the last meeting, the Reserve Bank of Australia implemented the most hawkish of all the assumed scenarios. Contrary to the dovish forecasts of most experts, the regulator unexpectedly raised the interest rate by 25 basis points and made unambiguous statements indicating a combative mood regarding further prospects. In an accompanying statement, the Central Bank noted that board members are still resolutely set on returning inflation to the target level, as inflation at 7% is “still too high.” At the same time, the Central Bank did not rule out further steps towards raising the rate: the final communique states that further tightening “will depend on how the economy and inflation will develop.”
There are certain reasons to assume that the minutes of the May meeting will be hawkish in nature. The fact is that after the May meeting, the RBA’s quarterly report was published, in which the regulator assessed the current economic conditions and forecasts, both for the Australian and the global economy. This document also turned out to be on the side of the Aussie: in particular, the Reserve Bank noted that the risks for inflation “are on the rise,” considering the low growth of labor productivity, rising energy prices, and a sharp increase in rent.
If similar phrases are present in the text of the minutes, the Australian dollar will receive support. In this case, the AUD/USD bulls will be able not only to overcome the resistance level of 0.6700 but also return to the borders of the 68th figure. But on one condition—if the U.S. dollar index continues to show a downward trend.
Conclusions
The Australian dollar has revived against the backdrop of a weakening greenback, which, in turn, reacted to a drop in risk-off sentiment. The sharp strengthening of the U.S. currency initially had an emotional character, so the current price pullback looks quite logical.
However, a warning is needed: the dollar rally may resume if Republicans and Democrats once again fail to find common ground in negotiations on the U.S. debt ceiling. In this case, the AUD/USD pair will again head towards the base of the 66th figure. The situation is uncertain, so both sales and purchases of the pair look risky.
The material has been provided by InstaForex Company – www.instaforex.com
The AUD/USD currency pair began the trading week with a corrective growth after an impulsive drop to the 0.6640 mark. Last Friday, AUD/USD updated a two-week price low amid the general strengthening of the greenback. Today, the greenback has loosened its grip: the U.S. dollar index demonstrates a downward trend, reflecting a decrease in demand. This situation allowed AUD/USD buyers to return to the borders of the 67th figure to the price barrier of 0.6700. At this price point, the lower border of the Kumo cloud on the D1 timeframe coincides with the average Bollinger Bands line and the Kijun-sen line of the Ichimoku indicator.
If the interest in risk in the market continues to increase, the Aussie will be able to regain lost positions in the coming days and return to the range of 0.6760–0.6800, within which the pair traded until recently. The minutes of the RBA’s May meeting, to be published during the Asian session on Tuesday, could provide additional support to the buyers of the pair.
The Dollar Has Loosened Its Grip
Looking ahead, it is worth noting that it is still too early to write off the U.S. currency: the dollar rally, under certain conditions, can resume with new vigor. However, at the moment, the level of anxiety in the market has decreased against the background of recent statements by U.S. President Joe Biden.
Recall that the surge in risk-off sentiment in the markets was due to two main reasons. Firstly, it is the risk of a U.S. government default. Secondly, the risk of another American bank going bankrupt. Such an information background contributed to the strengthening of the safe dollar, which de facto became the beneficiary of the situation.
Negotiations between Republicans and Democrats last week reached a deadlock. Representatives of the Democratic Party demand to raise the debt ceiling without any preliminary conditions, while the Republican Party insists that the expansion of borrowing powers be accompanied by significant restrictions on budgetary expenditures. When the parties could not agree and split up in the ring, the dollar significantly strengthened its positions, as the protracted confrontation caused fears that the government is actually moving towards default.
However, Biden announced yesterday that negotiations with Congress on raising the debt limit are progressing, and more will be known about their progress “over the next two days.” At the same time, he noted that he is optimistic about the prospects for reaching a compromise. According to Reuters, aides to the U.S. President and the Speaker of the House of Representatives from the Republican Party Kevin McCarthy began to discuss ways to limit federal spending in order to resume negotiations on raising the debt ceiling.
Such a turn of the plot cooled the ardor of dollar bulls. The U.S. dollar index turned downward, and AUD/USD buyers were able to organize a counterattack, rising to the 0.6700 mark. At the same time, tomorrow’s release may provide additional support to the Aussie. We are talking about the minutes of the RBA’s May meeting.
RBA Minutes
Recall that at the last meeting, the Reserve Bank of Australia implemented the most hawkish of all the assumed scenarios. Contrary to the dovish forecasts of most experts, the regulator unexpectedly raised the interest rate by 25 basis points and made unambiguous statements indicating a combative mood regarding further prospects. In an accompanying statement, the Central Bank noted that board members are still resolutely set on returning inflation to the target level, as inflation at 7% is “still too high.” At the same time, the Central Bank did not rule out further steps towards raising the rate: the final communique states that further tightening “will depend on how the economy and inflation will develop.”
There are certain reasons to assume that the minutes of the May meeting will be hawkish in nature. The fact is that after the May meeting, the RBA’s quarterly report was published, in which the regulator assessed the current economic conditions and forecasts, both for the Australian and the global economy. This document also turned out to be on the side of the Aussie: in particular, the Reserve Bank noted that the risks for inflation “are on the rise,” considering the low growth of labor productivity, rising energy prices, and a sharp increase in rent.
If similar phrases are present in the text of the minutes, the Australian dollar will receive support. In this case, the AUD/USD bulls will be able not only to overcome the resistance level of 0.6700 but also return to the borders of the 68th figure. But on one condition—if the U.S. dollar index continues to show a downward trend.
Conclusions
The Australian dollar has revived against the backdrop of a weakening greenback, which, in turn, reacted to a drop in risk-off sentiment. The sharp strengthening of the U.S. currency initially had an emotional character, so the current price pullback looks quite logical.
However, a warning is needed: the dollar rally may resume if Republicans and Democrats once again fail to find common ground in negotiations on the U.S. debt ceiling. In this case, the AUD/USD pair will again head towards the base of the 66th figure. The situation is uncertain, so both sales and purchases of the pair look risky.
The material has been provided by InstaForex Company – www.instaforex.com
Related Posts: