- The AUD/USD has been rather stubborn over the last couple of days, not willing to pull back from the top of a well-defined channel.
- This typically signifies that the market is trying to break out and very well could, but there’s a lot of noise in this general vicinity for multiple reasons.
- Furthermore, you have to look at the Thursday session through the prism of the Consumer Price Index release coming out, and thereby it could color what people think that the Federal Reserve is going to do about inflation.
The Federal Reserve has hearkened on and on about what they are focusing on right now, and that’s the inflationary pressures that the general populace is facing. This is a huge turnaround from a Federal Reserve that has solely focused on Wall Street and whether or not it’s making a profit. The last 14 years have been in a bubble as the Federal Reserve has done everything it can to inflate that bubble and keep the party going. Unfortunately, economic gravity and reality have come back into the picture, and the Federal Reserve probably has very little choice but to do something about inflation before the populace rises up. We are seeing this across the world, as central banks are raising interest rates everywhere.
Are Fundamentals Supporting the Current Recovery?
That being said, the Reserve Bank of Australia is also rather hawkish. However, the Australian economy is heavily dependent on commodities, so it’ll be interesting to see how that correlation plays out. If we do in fact get a nicely correlated move, then it’s likely that we would see this market pullback toward the 200-Day EMA. Keep in mind that Thursday will have that announcement and that volatility, and it’s possible that a lot of people will be willing to buy US dollars to protect themselves ahead of that announcement as well.
If we do break out to the upside and clear the 0.70 level, I would expect the Australian dollar to go much higher over the longer term. It’ll be interesting to see how that plays out because it would obviously be an attempt to reverse a longer-term downtrend. Over the last couple of months, we have recovered quite nicely, but now the question is whether or not we will have the fundamentals to back it up.
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