AUD/USD edges higher but retreats amidst positive sentiment

The AUD/USD is upward biased in the near term, boosted by RBA’s Lowe, saying that a 25-50 bps increase in the July meeting is on the cards.

AUD/USD edges up after beginning the week on the wrong foot, jumping from 0.6915 daily lows towards 0.6990 highs, closing to the 0.7000 threshold. At 0.6969, the AUD/USD reflects an upbeat market mood, portrayed by European and US equities recording robust gains on Tuesday.

Sentiment stays positive once US traders return from a long weekend due to a holiday. The AUD/USD got a boost since the Asian session when the Reserve Bank of Australia (RBA) Governor Philip Lowe stated that rates were still “very low for an economy with low unemployment and that is experiencing high inflation.”

Lowe added that price pressures would continue building up and expects local inflation to reach 7% by the end of the year. He forward guided traders, saying that at the July 5 meeting, they would expect 50 or 25 bps by that meeting.

Fed speakers continue to dominate the headlines. Richmond’s Fed President Thomas Barkin said that the Fed would have to restrict monetary policy, but the question is how much. He emphasized that the Fed needs to be flexible and commented that after the UoM survey, he felt it was possible to go 75 bps.

Barkin added that 50 or 75 bps in July are reasonable and commented that inflation would go down once supply chain issues are resolved.

Data-wise, the US economic docket featured the Chicago Fed National Activity Index, which went down to an eight-month low of 0.01 in May from 0.40 in April. Later, Existing US Home Sales declined by 3.4% to 5.41 million in May 2022, the lowest level since June 2020.

The AUD/USD continues to push towards the 0.7000 figure but failed to reclaim the threshold since Monday. Tuesday’s daily high, at 0.6993, fell shy of reaching the figure and was followed by a dip towards the 0.6960 area. Traders should be aware that zooming into the 1-hour chart, the AUD/USD 200-hour simple moving average (SMA) is acting as dynamic support, and was the reason AUD buyers failed to reclaim 0.7000.

The AUD/USD 1-hour chart depicts the pair as upward biased but consolidating in the 0.6960-90 area. That said, the AUD/USD first resistance would be the R1 daily pivot at 0.6990. Break above would expose the R2 daily pivot at 0.7030, followed by last week’s daily high at 0.7069. On the flip side, the major’s first support would be the daily pivot at 0.6950. A breach of the latter would expose additional support levels like the S1 pivot at 0.6910, followed by the 0.6900 figure.