AUD/USD: under pressure from the strengthening US dollar

 
 
 
 
 
 
 

On Wednesday and Thursday, Fed Chairman Jerome Powell will deliver a semi-annual report to Congress, where he will assess the results of the central bank's work and, probably, share plans for monetary policy, taking into account the immediate prospects for the national economy. He is likely to confirm the determination of the central bank's leadership to continue the fight against inflation. The tough tone of his statements should once again support the US dollar. His speeches are scheduled to start at 13:30 and 14:00 (GMT), respectively, on Wednesday and Thursday.

And, although futures for the DXY dollar index are declining today (at the time of publication of this article they are trading near 103.77, 179 points below last week's high of 105.56), in general, their upward trend remains. If the Fed raises the interest rate by 0.75% at the July meeting, then the markets will take into account the likelihood of its growth to the level of 3.5% by the end of this year, which will make it the highest among interest rates of other major world central banks. And this almost automatically makes the dollar more expensive in relation to other major currencies, creating prerequisites for its further strengthening against the backdrop of purchases by long-term strategic investors who prefer to receive, although not very high, but stable and guaranteed income. In view of this, the likelihood that the DXY dollar index will soon again exceed 105.00 is growing, with the prospect of further growth towards multi-year highs of 121.00 reached in the summer of 2001.

DXY Chart

From today's events and news from the economic calendar, it is worth noting the publication at 00:00 (GMT) of the minutes from the June meeting of the RBA and the speech at 00:30 (GMT) by the head of the RBA Philip Lowe.

"Australians need to be prepared to raise interest rates," Philip Lowe said earlier today. In his opinion, rates are still "very low" and it is important that higher inflation does not lead to higher public expectations and demands for wages. “Interest rates are still very low for an economy with low unemployment and high inflation,” Lowe said.

The minutes of the RBA's June monetary policy meeting, released after Philip Lowe's remarks, also indicated that board members remain determined to do whatever is necessary to ensure that inflation in Australia eventually returns to the target level.

However, neither the decision of the RBA to raise the interest rate, nor today's statements by Philip Lowe led to the strengthening of the Australian dollar. It remains vulnerable and declines both against the US dollar and in major cross pairs.

Minutes released today stated that “interest rates are still very low” and “a rate hike of 25 or 50 basis points will leave the cash rate below 1%, which will continue to be stimulative and further increases will be required.”

AUDUSD W Chart

As for the AUD/USD pair, its growth is constrained by the prospect of further strengthening of the US dollar against the backdrop of the most aggressive (compared to other major central banks in the world) monetary policy of the Fed.

AUDUSD D Chart

Support levels: 0.6900, 0.6850, 0.6800, 0.6455, 0.6270, 0.5975, 0.5665, 0.5510

Resistance levels: 0.6970, 0.7000, 0.7037, 0.7070, 0.7120, 0.7210, 0.7240, 0.7265, 0.7305

Trading Recommendations

Sell Stop 0.6915. Stop Loss 0.7010. Take-Profit 0.6900, 0.6850, 0.6800, 0.6455, 0.6270, 0.5975, 0.5665, 0.5510

Buy Stop 0.7010. Stop Loss 0.6915. Take-Profit 0.7037, 0.7070, 0.7120, 0.7210, 0.7240, 0.7265, 0.7305