The Australian dollar finds itself going back and forth during the trading session on Thursday, as we continue to see a lot of uncertainty in the market, simply chopping back and forth and trying to sort out what the next move could be.
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Keep in mind that the broader theme of the market right now is that the US dollar is strong and it probably will continue to be. That being said, the Australian dollar is a little bit different than many other currencies in the sense that it's so high tied to gold and commodities, and therefore it could be a fulcrum for forex behavior going forward, if we see some hesitation in US dollar buying.
Headlines in the Middle East
Markets have been very confused recently as the headlines coming out of the Middle East continue to be a major issue, with the idea that uncertainty is a certainty. It does make the US dollar more appealing. Furthermore, most traders believe that the United States is likely to raise interest rates. And with the idea of energy inflation still being a problem, that would make even more sense for traders to expect at this point. If that's going to be the case, then it makes a lot of sense that the US dollar remains somewhat resilient.
That being said, it does seem to me like the participants in the conflict in the Middle East are getting a bit exhausted. And quite frankly, I think the potential for war, despite the fact that there have been a few strikes in the last couple of days, is starting to diminish. If that ends up being the case, it could change the way markets behave in general.
Interest Rates Continue to Cause Worry
The biggest concern right now will be whether or not the interest rate markets continue to behave the same way because we are seeing a rush to the dollar based on the idea that there is inflation coming down the road. And as traders are in a state of flux at the moment, we've also seen other central banks suddenly get priced in on the idea of raising rates as well. This signals to me that markets will continue to be very chaotic.
With that being said, it does make a certain amount of sense that the Australian dollar will be in focus because it is so heavily influenced by gold and other commodities, which of course, are influenced by the idea of interest rates and inflation. With this being the case, I think it makes a lot of sense to pay attention to this market, and the fact that we are sitting just above the 200-day EMA continues to be of importance as well.
Potential Areas of Interest
Ultimately, if we can break to the upside, the 0 .70 level could be a target, just as the 0 .68 level could be a target if we break below the 200-day EMA. Right now, it looks like we are just simply waiting for some type of external factor or pressure to get this pair going. This is a market that will probably follow along with what's going on with the US dollar more than anything else, as the US dollar is the main driver of forex pairs to begin with. It isn't necessarily so much about the Australian dollar as it is the US dollar. So, watch other currency pairs to get a read on which way this one might break.
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