The Australian Dollar (AUD) faced a pullback in intraday gains against the US Dollar (USD) on Friday, as the latter continued its upward trajectory. The AUD had initially strengthened against the USD, buoyed by a robust domestic share market fueled by a technology surge on Wall Street, following strong labor data from the United States (US). However, the ongoing surge in the USD is attributed to heightened confidence in the US economy, prompting investors to navigate uncertainties surrounding the Federal Reserve’s (Fed) interest rate trajectory.
Despite the positive market sentiment, the AUD encountered obstacles amidst speculation about potential early interest rate cuts by the Reserve Bank of Australia (RBA). This speculation gained traction after a surprising decline in Employment Change data for December. Adding to this sentiment, a survey of economists by “The Australian Financial Review” indicated expectations of RBA interest rate cuts as early as September.
The risk aversion sentiment intensified due to escalating tensions in the Middle East, particularly in the Red Sea. Traders sought safe-haven assets, leading to increased demand for the US Dollar and applying downward pressure on the AUD/USD pair. The situation worsened as the US-led military coalition conducted strikes on Houthi targets in Yemen in response to missile attacks by the Iran-backed Houthi group on maritime vessels during the week.
The US Dollar Index (DXY) consolidated with a positive bias, continuing its winning streak. Favorable figures in key US indicators, including Housing Starts and Initial Jobless Claims, provided further momentum to the USD’s upside bias, reinforcing expectations of a more extended period of tightened monetary policy by the US Fed. The upward movement in US Treasury yields contributed to the positive momentum.
Technical Analysis: Australian Dollar Maintains Key Level at 0.6550
In terms of technical analysis, the Australian Dollar is trading near 0.6580, with a psychological resistance level at 0.6600. A breakthrough could propel the AUD/USD pair towards the nine-day Exponential Moving Average (EMA) at 0.6623 and the major level at 0.6650. On the downside, the 50% retracement level at 0.6568 and the major level at 0.6550 serve as immediate support. A breach below this zone could lead the pair towards the psychological level at 0.6500, aligned with the 61.8% Fibonacci retracement level at 0.6497.
