AUD/USD Price Forecast: Consolidates below 0.7050; remains close to three-week high
- AUD/USD struggles to lure buyers as the fragile US-Iran ceasefire supports the safe-haven USD.
- The Fed’s dovish outlook keeps the USD bulls on the defensive and lends support to spot prices.
- The technical setup suggests that the path of least resistance for the pair remains to the upside.
The AUD/USD pair struggles to capitalize on its weekly gains registered over the past three days and oscillates in a range below mid-0.7000s during the Asian session on Thursday. Nevertheless, spot prices remain close to a nearly three-week high, touched the previous day, and remain at the mercy of geopolitical developments.
Iran once again shut down shipping traffic through the critical Strait of Hormuz and threatened to withdraw from the ceasefire with the US following Israel's large wave of air strikes across Lebanon. This acts as a tailwind for the safe-haven US Dollar (USD) and caps the AUD/USD pair. However, the US Federal Reserve's (Fed) dovish outlook keeps a lid on the USD upside, which, in turn, is seen as a key factor lending some support to the currency pair.
From a technical perspective, spot prices currently trade around the 61.8% Fibonacci retracement level of the March downfall. A move beyond this will be seen as a fresh trigger for bulls against the backdrop of the recent rebound from the 100-day Simple Moving Average (SMA). Moreover, the Relative Strength Index is around 57, and a positive, rising Moving Average Convergence Divergence (MACD) hints that upside momentum is gradually improving.
Meanwhile, a decisive break above the 61.8% Fibo. retracement at 0.7046 would open the way toward the 78.6% level at 0.7106, ahead of the recent swing high at 0.7182. On the downside, initial support is seen at the 50% retracement near 0.7004, followed by the 38.2% level at 0.6962 and the 23.6% Fibo. retracement at 0.6910. The 100-day SMA is pegged at 0.6855 ahead of the March low at 0.6826, which reinforces a broader demand zone on deeper pullbacks.
(The technical analysis of this story was written with the help of an AI tool.)
AUD/USD daily chart
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
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