The AUD/USD pair declines to around 0.7120 during Asian trading hours on Wednesday. Expectations of a US interest rate hike provide some support to the US Dollar (USD) and act as a headwind for the pair. Traders brace for the US Federal Reserve (Fed) interest rate decision later on Wednesday.
Markets are now pricing in nearly a 92.4% chance that the US central bank will raise interest rates by 25 basis points (bps) at its September policy meeting on Wednesday, according to the CME FedWatch tool.
“A 25 basis-point increase is about 90% priced, implying the dollar will receive a modest boost if the Fed increases,” said Carol Kong, currency strategist at the Commonwealth Bank of Australia in Sydney.
Fed Chair Kevin Warsh will hold a press conference following the policy meeting on Wednesday. If Warsh plays down the risk of follow-up hikes, this could weigh on the Greenback in the near term. On the other hand, hawkish remarks from Fed policymakers could lift the USD against the AUD.
On the Aussie front, the Reserve Bank of Australia (RBA) has held the Official Cash Rate (OCR) at 4.35%, following three consecutive hikes earlier this year. However, expectations are growing for further interest rate increases due to stubbornly high underlying inflation.
Markets are now pricing in nearly a 78% probability that the Australian central bank will raise the Official Cash Rate (OCR) to 4.60% at the next RBA Board meeting, according to RBA Rate Tracker.
Aussie yields jump as global bond sell-off extends
Analysts at Societe Generale note that the latest leg of the global bond sell-off has spilled over into Australia, with “Aussie 10y yields leapt 8bp to 5.41% after the melt-up in the US above 5%.” They argue that “Treasuries have been stretched since yields crossed the 4.90% level last week,” adding that for German debt, “for the Bund, the equivalent was 3.30%,” underscoring how far core markets have moved in a short space of time.
Technical Analysis: AUD/USD retails a constructive bias in the near term
In the daily chart, AUD/USD holds above the 100-day simple moving average (SMA) and the lower Bollinger Band, suggesting a still constructive bias despite the recent pullback from earlier highs. The Relative Strength Index (RSI) at about 47 has eased back toward neutral, hinting at waning upside momentum rather than a decisive bearish shift.
On the topside, initial resistance is seen at the Bollinger middle band, the 20-day SMA, around 0.7170, with the upper band near 0.7230 forming a subsequent cap if bulls regain control. On the downside, immediate support is aligned near the current area around 0.7125, ahead of the lower band at 0.7108, while a break below there would expose the 100-day SMA at 0.7080 as the next key floor.