Currency pair of the week: AUD/USD

Direction of AUD/USD goes to depend upon comments from central banks regarding the recent spike in yields.
The Federal Reserve Bank of Australia meets in the week and is predicted to go away rates unchanged at all-time lows of 0.10% and reiterate the monetary policy will remain accommodative until CPI is sustainable at their targeted level of 2%-3%. At their February meeting, the RBA said that they expected that point will are available 2024! However, RBA governor Lowe will likely need to address the recent rise in yields and therefore the central banks intervention. Last week, rates within the Australian 10-year bond rose 45bps! As a results of the rise in bond yields, the RBA had to intensify its buying of 3-year bonds. They bought an estimated A$3 billion on Thursday and A$1 billion in Wednesday (and rates still went higher). Today, the RBA announced they were buying A$4 billion of longer-dated bonds, double the standard size! New coronavirus cases have continued to drop by the country, with sporting event capacities increasing to 50% and a few dance clubs reopening. Vaccines distribution is starting. With life in Australia moving back towards normal, is there an opportunity the RBA will need to raise rates before expected? Comments from financial institution in the week are going to be closely monitored.

Federal Reserve Chairman Jerome Powell gave his semi-annual testimony to Congress on Monetary Policy. He noted that current inflation expectations were transitory which the recent rise in yields was unsustainable. He also said that the Fed will keep monetary policy in situ until inflation is above the Fed’s target of 2%-3% for a few time, and until maximum employment is achieved. Yields within the US 10-year Treasury bond rose last week with a disappointing 7-year auction on Thursday. However, they need drifted lower off the highs from near 1.60% to 1.44% as of the time of this writing. Powell is about to talk on Thursday on the US economy at the WSJ Jobs Summit. His comments are going to be closely monitored to ascertain if he addresses the recent rise in yields and if the Fed will adjust monetary policy. The US stimulus package passed within the House of Representatives on Friday evening, and now will head to the Senate. additionally , although concerns are moving to the forefront regarding the coronavirus variants within the US, Johnson and Johnson’s vaccine was approved for emergency use within the US and is now the 3rd vaccine available. consistent with Bloomberg’s vaccine tracker, 75.2 million doses are given within the US, roughly 22% of the population. If things return to normal at a faster pace than the Fed expects, it’s going to put the Fed during a bind as inflation expectations and interest rates will rise, pushing the US Dollar lower!

AUD/USD had been in an orderly trend higher since early November 2020, then paused in January, forming a flag pattern. The pair broke higher on February 9th and was advancing nicely, on its way towards its flag target near 0.8400. However, on Thursday last week a confluence of resistance halted the move. First, the pair reached the phycological round number resistance at 0.8000. It also reached the 161.8% Fibonacci extension from the highs of January 6th to the lows of February 2nd, near 0.7960. Finally, price reached a better high because the RSI made a lower high, in overbought conditions, which could also be a sign of a reversal may be near. As a result, price did reverse, forming a bearish engulfing pattern on the daily timeframe. Price continued lower aggressively lower on Friday as stops were taken out below horizonal support below 0.7820.

On a 240-minute timeframe, AUD/USD is holding the 61.8% Fibonacci retracement and horizontal support near 0.7733. Below there, price can fall back to February 2nd lows near 0.7561. Further horizontal support is near the December 21st, 2020 lows near 0.7459. Short-term horizontal resistance doesn’t cross until near 0.7900, then the highs from Thursday near 0.8010.

Direction of AUD/USD goes to depend upon comments from central banks regarding the recent spike in yields. The RBA meeting and comments for Fed Chairman Powell (and other Fed speakers this week) are going to be closely monitored for clues to any quite adjustment to monetary policy. additionally , if AUD/USD breaks near term support at today’s lows (actual low is 0.7692), price may continue lower.