During Wednesday’s Asian session, AUD/USD declines to about 0.7120. The Federal Reserve is anticipated to increase its interest rate on Wednesday, marking the first adjustment in three years. Markets are currently assigning a 78% probability to a rate hike by the RBA at the upcoming late September meeting. The AUD/USD pair experiences a decline, reaching approximately 0.7120 during the Asian trading hours on Wednesday. Expectations of a US interest rate hike lend support to the US Dollar and serve as a headwind for the pair. Traders prepare for the impending decision on interest rates by the US Federal Reserve later this Wednesday.
Markets are currently reflecting an approximate 92.4% probability that the US central bank will implement a 25 basis point increase in interest rates during its policy meeting scheduled for September on Wednesday, as indicated by 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. Fed Chair Kevin Warsh is set to conduct a press conference subsequent to the policy meeting on Wednesday. If Warsh diminishes the perceived risk of subsequent rate hikes, this may exert downward pressure on the Greenback in the short term. Conversely, hawkish statements from Federal Reserve officials may strengthen the USD relative to the AUD.
On the Australian front, the Reserve Bank of Australia has maintained the Official Cash Rate at 4.35%, after implementing three consecutive increases earlier this year. However, expectations are rising for additional interest rate hikes in light of persistently elevated underlying inflation. Markets are currently assigning a probability of nearly 78% to the likelihood that the Australian central bank will increase the Official Cash Rate to 4.60% at the upcoming RBA Board meeting, as indicated by the RBA Rate Tracker. Analysts 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.
In the daily chart, AUD/USD remains positioned above the 100-day simple moving average and the lower Bollinger Band, indicating a continued constructive bias despite the recent retreat from previous peaks. The Relative Strength Index at approximately 47 has retreated toward neutral territory, suggesting a decline in upside momentum rather than indicating a clear bearish transition. On the topside, initial resistance is observed at the Bollinger middle band, the 20-day SMA, approximately 0.7170, with the upper band around 0.7230 establishing a subsequent cap should bulls regain control. On the downside, immediate support is positioned near the current level of 0.7125, preceding the lower band at 0.7108. A breach below this point would reveal the 100-day SMA at 0.7080 as the subsequent significant support level.
