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AUD/USD Steadies but Bearish Forces Remain

AUD/USD Steadies but Bearish Forces Remain

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AUD/USD is clinging to life above the key support at 0.6700. The question is, will the Federal Reserve torpedo the Aussie’s recovery?

Although the Australian dollar has made considerable gains against the British Pound, Euro and Kiwi Dollar this year, it is no competition for the resurgent buck.

This year the US dollar has risen against almost all peers, driven by interest rate differentials and safe-haven buying.

The Federal Reserve Open Market Committee has raised rates agressively in 2022, including two consecutive 75 basis point hikes. Furthermore, the FOMC will likely tighten by the same magnitude tomorrow (September 21).

The Fed’s insistence on tightening aggressively to combat inflation could further diverge policy from the Reserve Bank of Australia (RBA), which is planning to slow the pace of tightening.

RBA Governor Philip Lowe stated the central bank is likey to raise rates either 25 or 50 bp at the October 4 meeting.

Another problem facing the Aussie dollar is falling commodity prices. Many of the raw materials that Australia exports have fallen in price in the last few months. Furthermore, with China’s economy slowing, demand could remain weak for some time. With this in mind, the AUD/USD may have further to fall.

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Aussie Dollar to US Dollar Forecast

The daily chart shows AUD/USD is trading within the band of support between 0.6700 and 0.6750. To reverse the recent weakness, the Aussie must decisively clear 0.6750. In this event, AUD/USD could extend gains towards the 50-Day Moving Average (DMA) at 0.6885.

The danger arrives if the FOMC hike more than expected. In the event of a 100bp raise, the dollar could strengthen considerably. Here, we expect AUD/USD to break down, targeting the 0.6600 big figure.

Ahead of tomorrow’s FOMC, the rate is likely to remain in limbo. Therefore, our immediate view is neutral, awaiting the Fed’s decision.

AUD/USD Price Chart

Elliot Laybourne
Elliott is a former investment banker with a 20 year career in the city of London. During this time he held senior roles at ABN Amro, Societe Generale, Marex Financial and Natixis bank, specialising in commodity derivatives and options market-making. During this time, Elliott’s client list included Goldman Sachs, JP Morgan, Credit Suisse, Schroders Asset Management, and the Pennsylvania State Public School Employees Retirement System, amongst others. Today, he splits his time between Thailand and Dubai, from where he provides trading consultancy and business development services for family office and brokerage clientele.