AUD/USD is moving towards a test of the 200-day moving average
If buyers do manage to test the level, it'll be the first time since April last year that price actually attempted a more bullish break. The previous run higher in early December fell short of testing the 200-day MA (blue line) but this time around aussie buyers may just capitalise enough on dollar weakness from the Fed to attempt a break higher.
From a technical perspective, price is closing in on a key level that could either signal a breakout to the upside on the back of more bullish momentum or a key resistance level that could limit gains for the pair.
Hence, let's see what the fundamentals are saying. Markets are now zooming in on dollar weakness after the Fed yesterday as participants look to scale back further their rate hike expectations from two to one. That said, in terms of pricing, the Fed is still seen not hiking rates at all this year.
So, is there anything new for us to work with?
Essentially, there isn't much as the Fed continues to preach on 'patience' and being 'data-dependent'. That said, US economic data as of late hasn't been too encouraging and that's not helping with dollar sentiment either. I reckon the backlog of data from the shutdown will also indicate further weakness in economic sentiment so that's not going to be good news for the greenback in the near-term.
However, the aussie side of the equation isn't that much brighter either. But the difference here is that most of what is dragging the aussie lower over the past year are 'known unknowns'. That is in the sense that we all know what those factors are such as high household debt levels, stalling inflationary pressures, relatively weak wage growth still, and falling house prices.
Hence, I wouldn't rule out further near-term weakness in the dollar but in the big picture I won't be too optimistic about AUD/USD running towards 0.7500 or higher unless things in the Australian economy improve. The 200-day MA would be a good place to scale out on longs before reviewing the pair again. Right now, it's all about how far the weakness in the dollar will go.
Fundamentally, I would argue there shouldn't be much. But you also can't argue with technical breaks i.e. gold at 8-months high, EUR/USD above 1.15, USD/CAD below 200-day MA.
