AUD/USD Forex Technical Analysis – Weaker on Belief Local Short-Term Yields May Have Peaked

The Australian Dollar is trading lower on Wednesday as higher-yielding, higher-risk assets took a tumble on renewed fears about recession risks. The price action suggests the Aussie may be headed for a test of a pair of two-year bottoms at .6811 and .6777. A slight dip in local bond yields could be another catalyst driving the selling pressure.

At 09:34 GMT, the AUD/USD is trading .6889, down 0.0084 or -1.20%. On Tuesday, the Invesco CurrencyShares Australian Dollar Trust ETF (FXA) settled at $69.02, up $0.36 or +0.52%.

Sellers Reacting to Dip in Short-Term Yields

Domestic yields have eased a little after Reserve Bank of Australia (RBA) Governor Philip Lowe all but ruled out a hike of 75 basis points next month, saying the choice would be either 25 or 50 basis points.

Coupled with the risk of recession in a number of countries, this news suggests the market is close to the peak in short-end yields. This may also be the main reason for today’s increased selling pressure.

Essentially, Lowe was dovish, but he wasn’t hawkish either. He was trying to find the sweet spot where short-term rates weren’t so high as to trash the economy, but at the level needed to slow down inflation.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through .6851 will signal a resumption of the downtrend. A move through .7069 will change the main trend to up.

The minor range is .6851 to .7069. The AUD/USD is currently trading on the weak side of its retracement zone, making it resistance.

Daily Swing Chart Technical Forecast

Trader reaction to the minor pivot at .6960 is likely to determine the direction of the AUD/USD on Wednesday.

Bearish Scenario

A sustained move under .6960 will indicate the presence of sellers. If this creates enough downside momentum then look for the selling to extend into the nearest main bottoms at .6851 and .6829.

If .6829 fails then look for further selling to drive the Aussie into the June 22, 2020 main bottom at .6811, followed by the June 15, 2020 main bottom at .6777.

Bullish Scenario

A sustained move over .6960 will signal the presence of buyers. If this move generates enough upside pressure then look for a strong short-covering rally into the resistance cluster at .7067 – .7069.