The AUD/USD pair has retreated after reaching its highest level in over a month, hovering around the 0.6750-0.6755 region earlier on Wednesday. As the European session unfolds, the pair remains under pressure, trading around 0.6730-0.6735, down 0.15% for the day, snapping a three-day winning streak. This decline is largely driven by a modest strengthening of the US Dollar (USD).
The USD Index (DXY), which measures the Greenback against a basket of currencies, has rebounded from its lowest point since January due to repositioning ahead of the release of the July FOMC meeting minutes later in the US session. Additionally, a slight dip in global risk sentiment is boosting the safe-haven appeal of the USD, drawing investment away from the risk-sensitive Australian Dollar (AUD).
Despite the pullback, the downside for the AUD/USD pair appears limited due to the Reserve Bank of Australia‘s (RBA) hawkish outlook. The RBA has indicated its readiness to hike interest rates further if inflation risks increase. This stance, coupled with speculation about significant economic stimulus measures from China’s government, could provide support for the AUD, often seen as a proxy for Chinese economic activity.
Moreover, expectations that the Federal Reserve (Fed) may begin easing its policy with a 25 basis points rate cut in September could limit the USD’s gains. Traders are likely to await Fed Chair Jerome Powell’s upcoming speech at the Jackson Hole Symposium on Friday for more clarity on the central bank‘s policy direction, making it premature to conclude that the AUD/USD pair has peaked in the near term.
From a technical perspective, last week’s breakout above the 0.6600 level—encompassing both the 200-day and 100-day Simple Moving Averages (SMA)—favors a bullish outlook. Consequently, any further corrective decline is likely to present a buying opportunity, suggesting that losses will be limited.
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