Bulls have the edge while above 0.6700, awaited Powell’s speech

• AUD/USD draws some buyers on Friday amid modest USD weakness.
• Divergent Fed-RBA policy outlooks provide further support to the major.
• Bulls are now awaiting Fed Chairman Jerome Powell’s speech before placing new bets.

AUD/USD is regaining positive traction on Friday and for now appears to have stalled its modest slide back from the 0.6760 area or above a one-month high reached earlier this week. Spot prices are holding on to intraday gains in the first half of the European session and are currently trading around the 0.6725 region, up 0.30% on the day.

The US dollar (USD) is struggling to capitalize on the overnight recovery from the YTD low and is attracting fresh sellers amid dovish Federal Reserve (Fed) expectations, which in turn is providing some support to the AUD/USD pair. In fact, markets now seem convinced that the US central bank will begin its policy easing cycle in September and have fully priced in a 25 basis point (bps) rate cut. In addition, CME Group’s FedWatch tool points to the possibility of a further 50 bps rate cut next month and a cut of about 100 bps by the end of this year.

The Australian dollar (AUD), on the other hand, continues to enjoy support from the Reserve Bank of Australia (RBA), showing willingness to raise interest rates again in the face of higher inflation risks. This is seen as another factor acting as a tailwind for the AUD/USD pair. Bulls, however, may refrain from placing aggressive bets and prefer to wait for Fed Chairman Jerome Powell’s speech at the Jackson Hole Symposium. Investors will be looking for clues on the path of the rate cut, which will influence the USD and provide a significant boost.

From a technical perspective, the recent breakout through the confluence of 0.6600 – comprising the 100- and 200-day simple moving averages (SMA) – and subsequent strength beyond the 0.6700 mark was seen as a new trigger for the bulls. Furthermore, the oscillators on the daily chart remain comfortably in positive territory and are still far from the overbought zone. This in turn suggests that the path of least resistance for the AUD/USD pair is to the upside and supports the prospects for an extension of the recent strong recovery from the YTD low reached earlier this month.

Bulls, however, may wait for some further buying beyond the 0.6750 horizontal barrier before placing new bets. AUD/USD could then look to challenge the YTD top around the 0.6800 round figure before climbing further towards the December 2023 swing high around the 0.6870 region.

On the other hand, the 0.6700 mark is likely to protect the immediate downside ahead of the 0.6675 area, below which the AUD/USD pair could slip back to the break of the 0.6600 confluence resistance, now turned into support . The latter should act as a strong base which, if decisively broken, could trigger aggressive technical selling and pull spot prices to the intermediate support of 0.6550-0.6545 en route to the psychological 0 mark. 6500.

AUD/USD Daily Chart