AUDUSD Forecast – Hovering Near 8-Month High after Powell Strikes Dovish Tone

The Australian Dollar is testing an eight-month high on Thursday after Federal Reserve Chair Powell struck a dovish tone the previous day by noting that inflation was easing in the U.S. economy, igniting a risk-on rally across the markets.

The Aussie hit its highest level since early June shortly after the opening on Thursday after surging more than 1.2% a day earlier. The upside momentum has put the currency on a path toward the June 3 main top at .7283.

At 06:01 GMT, the AUDUSD is trading .7148, up 0.0012 or +0.17%. On Wednesday, the Invesco CurrencyShares Australian Dollar Trust ETF (FXA) settled at $70.58, up $0.71 or +1.02%.

Traders Believe Powell Sent Dovish Message

Fed Chair Powell, speaking in a news conference after the central bank hiked rates by a widely expected 25 basis points, referred repeatedly to the “disinflationary” process that now appeared to be underway, suggesting the fight against high inflation has turned a key corner.

However, policymakers also projected “ongoing increases” in borrowing costs would be needed.

Futures markets are pricing in another 25 basis point hike during the March policy meeting, while implying that might be the end of the current tightening cycle from the Fed. They also priced in two rate cuts by the end of this year.

Daily AUDUSD Technical Analysis

The main trend is up according to the daily swing chart. The uptrend was reaffirmed on Wednesday when buyers took out the previous main top at .7143. A move through .6984 will change the main trend to down.

The AUDUSD is also trading on the bullish side of the Aug. 11 main top at .7137, followed by a minor pivot at .7071.

On the upside, the major target is the June 3 main top at .7283.

Daily AUDUSD Technical Forecast

Trader reaction to .7136 is likely to set the tone on Thursday.

Bullish Scenario

A sustained move over .7136 will indicate the presence of buyers. If this creates enough upside momentum then look for the rally to continue toward .7283. However, gains could be limited ahead of Friday’s U.S. Non-Farm Payrolls report.

Bearish Scenario

A sustained move under .7136 will signal the presence of sellers. If this generates enough downside momentum then look for the selling to possibly extend into the minor pivot at .7071.

Side Notes

A close below .7136 will form a potentially bearish closing price reversal top. This won’t change the main trend to down, but if confirmed, it could trigger the start of a 2 to 3 day correction.