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The Australian Dollar is inching higher against the U.S. Dollar on Wednesday, but the range is tight and the volume is low, making the buying appear a little tentative.
The currency is being underpinned by steady risk sentiment, but buyers are being cautious because they aren’t sure of the size of the next expected rate hike from the Reserve Bank (RBA).
At 04:00 GMT, the AUD/USD is trading .6313, up 0.0005 or +0.07%. The Invesco CurrencyShares Australian Dollar Trust ETF (FXA) settled at $62.22, up $0.04 or +0.07%.
RBA Rate Hike Expectations Diverge from Fed, RBNZ
In the United States, the outlook for further rate hikes is clear. In New Zealand, yesterday’s red-hot inflation reading cemented at least a 75-basis point rate hike by the Reserve Bank of New Zealand (RBNZ) in late November.
But in Australia, the outlook for local interest rates is unclear following the release of the minutes from the RBA’s latest meeting on Tuesday.
In contrast to what the market is looking for from the U.S. Federal Reserve and the Reserve Bank of New Zealand, traders still assume the Reserve Bank of Australia will hike by only 25 basis points at its meeting next month and for rates to peak somewhere around 4.0%.
Rate hike expectations could rise later this week with the release of the report on Australian Employment Change and Unemployment rate. And next week’s third-quarter CPI report could actually narrow the odds on a half-point hike in November.
In my opinion, improving risk sentiment could continue to underpin the Aussie, but it’s going to take an increase in the chances of a 50-basis-point rate hike to generate even a small short-covering rally.
I don’t think we’re going to see a longer-term rally because the Fed is expected to raise its benchmark rate at a higher or faster clip than the RBA.
Daily Swing Chart Technical Analysis
The main trend is down according to the daily swing chart. However, momentum has made a slight shift to the upside.
A trade through .6170 will signal a resumption of the downtrend. A move through .6548 will change the main trend to up.
The minor range is .6170 to .6347. Its pivot at .6258 is support. The short-term range is .6548 to .6170. Its pivot at .6359 is potential resistance.
The major resistance is the long-term Fibonacci level at .6466.
Daily Swing Chart Technical Forecast
Trader reaction to .6272 is likely to determine the direction of the AUD/USD on Wednesday.
Bullish Scenario
A sustained move over .6272 will indicate the presence of buyers. If this generates enough upside momentum then look for a surge into the pivot at .6359.
Sellers could come in on the first test of .6359, but overcoming it with strong volume could trigger an acceleration to the upside with .6466 the next major target.
Bearish Scenario
A sustained move under .6572 will signal the presence of sellers. This could trigger a break into the pivot at .6258.
Counter-trend buyers could come in on the first test of .6258. They are going to try to form a potentially bullish secondary higher bottom, but if this level fails to hold then look for a retest of the main bottom at .6170.
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