- AUD/USD catches new bids on Thursday, nearing weekly highs.
- Uncertainty about the Federal Reserve’s rate hike path weighs heavily on the US Dollar, providing support.
- A risk-on mood will further undermine investment and benefit risk-sensitive Australians.
The AUD/USD pair regained positive traction on Thursday and remains strong bullish throughout the Central Europe session. The pair is currently trading around 0.6975-0.6980, a few pips below Wednesday’s weekly high.
A combination of factors is expected to provide a tailwind for the AUD/USD pair as the US dollar rebounds sharply from its one-month high. Uncertainty about the Federal Reserve’s rate hike path drives US Treasury yields lower. This, along with the risk-on urge, puts pressure on safe haven spending and benefits risk-sensitive Australians.
Investors turned optimistic amid signs of easing inflationary pressures and expectations that the People’s Bank of China (PBoC) may cut interest rates further in the second quarter. The Australian dollar is also supported by the Reserve Bank of Australia’s hawkish outlook, which indicates further rate hikes are needed to ensure inflation returns to target.
That said, prospects for further tightening by the Fed could encourage the emergence of US dollar buying and cap the rise of the AUD/USD pair. In fact, many of his FOMC members on Wednesday agreed with Fed Chairman Jerome Powell’s view that additional rate hikes are likely justified to keep inflation under control.
Moreover, growing concerns about a more severe global economic downturn could undermine market optimism. This could give the dollar some support and help keep the AUD/USD pair in check, at least for the time being. Traders now look forward to the release of the first weekly unemployment claims data from the US.
This, along with US Treasury yields, will influence the US dollar price dynamics and provide a stimulus to the AUD/USD pair. Separately, broader risk sentiment will further contribute to creating short-term opportunities ahead of the RBA’s meeting minutes and the latest Chinese inflation rate to be released during Friday’s Asian session. There is a possibility.