The Australian Dollar (AUD) grapples with heightened market uncertainty, hovering around the psychological level of 0.6600 on Monday. This uncertainty is primarily fueled by discussions between the United States (US) and the United Kingdom (UK) regarding potential actions against Iran-backed Houthi terrorists in Yemen. The AUD/USD pair experiences fluctuations, finding some support from a weakened US Dollar (USD), influenced by a reduction in long-term US Treasury yields.
Australia’s currency encounters a setback amid speculation surrounding possible early interest rate cuts by the Reserve Bank of Australia (RBA). This speculation gains momentum with the release of subdued figures for Aussie Consumer Confidence and Employment Change. Despite this, the AUD receives a boost from the domestic share market surge, mirroring a rally in the US that propelled the S&P 500 and the Nasdaq to new records on Friday. Expectations of a future interest rate cut by the US Federal Reserve (Fed) and positive projections from Taiwan Semiconductor Manufacturing contribute to this optimism, impacting global stocks.
The People’s Bank of China opts to maintain stability in its Loan Prime Rate (LPR), keeping it unchanged at 3.45% for the one-year term and 4.20% for the five-year term.
The US Dollar Index (DXY) continues its losing streak, but concerns about potential disruptions in maritime trade in the Red Sea could provide some support. The US and the UK are considering an escalation of their campaign without provoking a broader conflict with Iran. As more ships divert from the Suez Canal and the Red Sea due to rising insurance costs, the alternative route around the southern tip of Africa may increase delivery times, shipping costs, and inflation. This situation could foster risk aversion sentiments, prompting traders to turn to the safe-haven US Dollar, exerting downward pressure on the AUD/USD pair.
San Francisco Fed President Mary Daly asserts that the central bank has substantial work ahead in bringing inflation back to the 2.0% target. She cautions against premature consideration of interest-rate cuts. Atlanta Fed President Raphael Bostic maintains openness to adjusting outlooks on rate cuts but emphasizes the Fed’s reliance on data.
Technical Analysis: Australian Dollar Holds Above 0.6550 Psychological Level
The Australian Dollar trades near 0.6610 on Monday, facing potential resistance around the nine-day Exponential Moving Average (EMA) at 0.6624, followed by a significant level at 0.6650. Surpassing these levels may lead to a test of the psychological level at 0.6700. On the downside, immediate support is evident at 0.6600, followed by the 50% retracement level at 0.6568, and then the major support at 0.6550. A breach below the latter could prompt the AUD/USD pair to explore levels around the psychological mark of 0.6500, coupled with the 61.8% Fibonacci retracement level at 0.6497.
