AUD/USD Price Forecast: Hawkish RBA Challenges Raging USD

[MongiIG]

AUD/USD OUTLOOK

• RBA monetary policy statement overview.
• Key option expiries later today.
• IG client sentiment: Mixed.

AUSTRALIAN DOLLAR FUNDAMENTAL BACKDROP

Earlier this morning the Reserve Bank of Australia (RBA) released its monetary policy statement. Listed below are the important issues addressed by the central bank:

1. Inflation forecasts have been revised higher and is expected to remain elevated above the 2%-3% range.

2. No concern over weakening AUD – trading around similar levels pre-pandemic as well as the start of 2022.

3. Tight labor market with low unemployment levels.

AUSTRALIAN UNEMPLOYMENT RATE

Source: rba.gov.au

4. Interest rate hikes required to stem inflationary pressures.

5. Decline in Chinese growth forecasts.

Taking into account he points listed above, the Australian dollar has much in the way of upside support locally and should the Chinese economy see a turnaround, the AUD could be a front runner against the U.S. dollar going forward. Few currencies have shown such resiliency against the greenback and even fewer have the solid economic foundations to withstand aggressive rate hikes.

Later today (New York cut), the below option expiries are scheduled with emphasis on the 0.7200 and 0.7300 strikes respectively. This could see AUD strength as markets tend to move toward larger strikes as expiry approaches (rule of thumb).

AUD/USD: 0.7000 (524M), 0.7100 (908M), 0.7200 (972M) and 0.7300 (2.27BLN)

On the economic calendar later today, the NFP release dominates headlines with forecasts expected below the prior March print at 391K. A print in line or below this figure could see the AUD climb higher towards the aforementioned option expiry strike levels.

AUD/USD ECONOMIC CALENDAR

Source: DailyFX economic calendar

AUD/USD TECHNICAL ANALYSIS

AUD/USD DAILY CHART

Chart prepared by Warren Venketas, IG

Price action on the daily AUD/USD chart above shows bears looking to test the 0.7000 psychological support zone for the third time since December 2021. Short-term this does look probable with the dollar bid and the Chinese economy unlikely to make a swift turnaround. I will be looking for a confirmation break above 0.7183 (61.8% Fibonacci) to rethink the downside bias. If prices approach the 0.7183 resistance zone, this could be a great entry point for bears to re-enter.

Key resistance levels:

• 200-day SMA (grey)
• 0.7183

Key support levels:

• 0.7000

 

May 6, 2022 | DailyFX
Warren Venketas, Analyst