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On Friday, the PBoC will be in the spotlight. Better-than-expected economic indicators from China suggest the PBoC will leave the Loan Prime Rates (LPR) unchanged. An unexpected lowering of the LPRs would give the Aussie dollar a boost. The three and five-year LPRs are at 3.45% and 4.20%, respectively.
China accounts for one-third of Australian exports. Looser PBoC monetary policy fuels demand, benefiting the Australian economy and the Aussie dollar. The Australian trade-to-GDP ratio is above 50%, with more than 20% of Australian jobs being trade-related.
Beyond the economic calendar, investors must monitor news updates from the Middle East. An escalation in the Middle East conflict remains a risk for the Aussie.
After a dovish Fed Chair Powell speech on Thursday, FOMC member commentary will remain a focal point.
FOMC members Patrick Harker and Loretta Mester are on the calendar to speak on Thursday. An alignment with Fed Chair Powell’s outlook on monetary policy and US Treasury yields will likely pressure demand for the US dollar.
In recent speeches, FOMC member Patrick Harker supported holding interest rates. In contrast, Loretta Mester favored a Fed rate hike but spoke before the 10-year US Treasury yield spike. A pivot to a more dovish policy outlook will pressure the appetite for the US dollar.
Short-Term Forecast
Market bets on the Fed ending the monetary policy tightening cycle ease the buying appetite for the US dollar. However, employment figures from Australia have also raised expectations of the RBA standing pat on cash rates, leaving interest rate differentials and market risk sentiment to dictate near-term trends.
AUD/USD Price Action
Daily Chart
The AUD/USD remained below the 50-day and 200-day EMAs, affirming bearish price signals.
A drop below $0.63 would support a move to the $0.62749 support level and trend line. The buying appetite for the Aussie dollar may intensify at $0.62750. The trend line is confluent with the resistance level.
The PBoC, Fed speeches, and the Middle East conflict will be focal points on Friday.
An AUD/USD move through $0.63500 would support a break above the $0.63854 resistance level to bring the 50-day EMA into play.
A de-escalation in the Middle East would fuel demand for the Aussie dollar.
A 14-period Daily RSI reading of 42.74 suggests an AUD/USD drop below the trend line before entering oversold territory (typically below 30 on the RSI scale).
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