AUD/USD Reaction to .7274 – .7341 Sets Near-Term Tone

The Australian Dollar is moving higher on Thursday as traders continue to liquidate long U.S. Dollar positions after U.S. consumer inflation data came in as expected a day earlier.

Gains in the Aussie currency had been capped for days after the Federal Reserve minutes, released last week, strongly suggested policymakers would take a more hawkish approach toward fighting rising inflation. But Wednesday’s U.S. consumer inflation report showed data had met expectations, somewhat reducing the urgency by the Fed to raise rates as soon as March.

At 12:10 GMT, the AUD/USD is trading .7295, up 0.0010 or +0.14%. On Wednesday, the Invesco CurrencyShares Australia Dollar Trust ETF (FXA) settled at $72.32, up $0.80 or +1.12%.

The Aussie is benefitting from a sudden sell-off in the U.S. Dollar as data showed annual inflation at 40-year highs in December but not as robust as many traders had feared.

Furthermore, traders are now pricing in an 80% chance of a Federal Reserve rate hike as early March, down from 90% earlier in the week. Nonetheless, they continued to stick with their forecasts calling for a peak in rates by the end of the year at 1.75-2.0%.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. The uptrend was reaffirmed on Wednesday when buyers drove through the previous main top at .7277. A move through .7130 will change the main trend to down.

The main range is .7556 to .6993. The AUD/USD is currently testing its retracement zone at .7274 to .7341. Trader reaction to this area should determine the near-term direction of the Forex pair.

The minor range is .6993 to .7324. Its retracement zone at .7153 to .7116 is the nearest support area.

Daily Swing Chart Technical Forecast

The direction of the AUD/USD on Thursday is likely to be determined by trader reaction to .7274.

Bullish Scenario

A sustained move over .7274 will indicate the presence of buyers. If this move creates enough upside momentum then look for a test of .7341.

Look for sellers on the first test of .7341, but if buyers can overcome this level, we could see an acceleration to the upside with potential targets a minor top at .7371 and a main top at .7431.

Bearish Scenario

A sustained move under .7274 will signal the presence of sellers. This could trigger a quick break into a minor pivot at .7222. Buyers could show up on a test of this level, but if it fails then look for the selling to possibly extend into .7153 – .7115.