Bulls retain control near multi-month high amid divergent RBA-Fed outlook

• AUD/USD is hitting a new multi-month high and is being supported by a combination of factors.
• Divergent RBA-Fed policy expectations, along with risk-on momentum, benefit the Aussies.
• Traders are looking to US macro data for some impetus ahead of Friday’s PBOC rate setting.

The AUD/USD pair is attracting fresh buying from the previous day’s modest pullback and climbed to the 0.6830 area, or the highest level since January, in the early part of the European session on Thursday. The Australian dollar (AUD) is broadly strengthening in reaction to the upbeat domestic jobs report. The Australian Bureau of Statistics (ABS) reported that the number of people employed rose by 47.5k in August, compared with market expectations for a reading of 25k, while the unemployment rate held steady at 4.2%. The data reinforced the view that the labor market remains tight and is in line with the Reserve Bank of Australia’s assessment that interest rate cuts are unlikely in the near term. In fact, investors cut the chance of a first easing by the RBA in December to 62% from 75% before the data.

Instead, the US Federal Reserve (Fed) decided to start its policy easing cycle and cut borrowing costs by 50 basis points (bps) on Wednesday. In addition, policymakers forecast rates will fall by another half a percentage point by the end of this year and to 3.4% in 2025, down from an earlier forecast of 4.1%, before falling to 2.9% in 2026, down from a previous forecast of 3.1. %. New economic projections, meanwhile, revealed that the Fed does not see inflation returning to its 2% target before 2026, raising questions about the extent of interest rate cuts going forward. Adding to this, Fed Chairman Jerome Powell said during the post-meeting press conference that the central bank had no intention of returning to an ultra-low interest rate regime and that the neutral rate will now be much higher than it seen in the past.

The not-so-favorable outlook has shaken hopes of outsized Fed rate cuts in the future, pushing US Treasury yields higher and sparking a nice USD rebound from July 2023 lows. The recovery, however, it runs out. amid bullish market sentiment, which tends to undercut the haven Greenback. Apart from this, expectations for more stimulus from China are helping the risk-sensitive Aussie and contributing to the strong rally in the AUD/USD pair. Therefore, Friday’s rate setting by the People’s Bank of China (PBOC) should provide a significant boost to the currency pair. Meanwhile, traders will take cues from Thursday’s US macro releases — initial weekly jobless claims, the Philly Fed manufacturing index and existing home sales — to take advantage of near-term opportunities.

Technical perspectives

From a technical perspective, momentum beyond the August monthly swing high validates a bullish intraday breakout through the 0.6800 round-digit mark. Additionally, the oscillators on the daily chart remain in positive territory and are still far from overbought, suggesting that the path of least resistance for the AUD/USD pair is to the upside. Therefore, a further move towards testing the December swing high around the 0.6870 region seems a distinct possibility. Bulls could then aim to conquer the 0.6900 mark for the first time since February 2023.

On the other hand, any significant pullback below the 0.6800 mark is likely to find support near the horizontal area of ​​0.6770. Further decline could drag the AUD/USD pair further, although it could still be seen as a buying opportunity and remain capped near the 0.6700 level. The latter should act as a strong near-term base which, if broken decisively, could make vulnerable spot prices weaken further below the 0.6670-0.6660 confluence – comprising simple moving averages ( 50-day and 100-day SMA) to challenge the 200-day SMA, currently pegged near the 0.6620 area.

AUD/USD Daily Chart