AUD/USD finally catches a break
A combination of the RBA cutting rates and an emergency Fed response brought AUD/USD higher in trading yesterday, with the latter being a key factor in driving the upside move amid a weaker dollar in response.
AUD/USD rose to a high of 0.6645 and more importantly, broke back above its 200-hour MA (blue line) following an earlier break of its 100-hour MA (red line).
That sees the near-term bias turn more bullish now.
As I argued before, there are two things to watch out for in the aussie if it needs to break away from its "don't catch the falling knife" episode. One of them is a change in near-term technical sentiment and now we can check that off the box.
The good news for the aussie today is that it is managing to keep with gains - especially in the past few hours - and is moving back above the 0.6600 level.
Further resistance is now seen around 0.6639-45 before 0.6700 comes back into play.
The question is, can the aussie extend higher from here? I reckon there is scope for further short covering in AUD/USD with the Fed set to ease rates further and the RBA starting to exhaust their policy options (one more rate cut left).
In that sense, the yields spread between Treasuries and Aussie bonds look set to tighten further in favour of the latter and could keep the pair supportive.
However, in the bigger picture, so long as the virus outbreak continues to cause a major disruption across the globe and weigh further on the world economy, the aussie may not be in a great spot with limited stimulus measures to aid the economy.
And with a possibly more profound supply-side shock en route, that won't spell good news for risk assets either as monetary policy can only do so much.
I reckon that there is perhaps scope for AUD/USD to run up towards 0.6800 and near its key daily moving averages (at 0.6812 and 0.6836 currently) but it would be a tall order to chase a move beyond that.
For now, even 0.6700 looks difficult but a further nudge by the Fed could help with that as we look towards the 18 March policy meeting.
