AUDUSD pair is trading in a confined trading range just above a nearly one-month low.
The AUDUSD pair consolidates its recent decline to a nearly one-month low on Wednesday. Oscillating between weak gains and slight losses. Spot prices are currently trading slightly over the 0.6600 round-figure line. Essentially steady for the day, and the lack of any major purchasing reinforces expectations of a continuation of the recent falling trend seen over the last three weeks or so.
Bets for another Fed rate hike outweigh Fitch’s downgrading and strengthen the USD.
The AUDUSD pair did gain some ground. Following Fitch’s reduction of the US Long-Term Foreign-Currency Issuer Default Rating (IDR) to ‘AA+’ from ‘AAA’. There was some intraday USD selling. The initial market reaction. However, has been restricted due to a generally weaker risk tone, which tends to undercut the risk-sensitive Australian dollar. Aside from that, increased expectations on the Federal Reserve (Fed) raising interest rates by 25 basis points (bps) in September or November function as a tailwind for the USD, limiting the major’s upside potential.
It is worth noting that Fed Chair Jerome Powell stated last week that the economy still has to slow and the labor market to weaken for inflation to return to the 2% target in a credible manner. In addition, The US macro data suggests to an unusually strong economy, which supports the Fed’s prospects for additional tightening. This supports the USD and continues to support rising US Treasury bond yields. Aside from that, the Reserve Bank of Australia’s (RBA) decision to keep interest rates steady on Tuesday benefits AUDUSD bears.
The aforementioned underlying backdrop suggests that the path of least resistance for spot prices is to the downside, however expectations for more Chinese stimulus may help limit losses for the China-proxy Australian Dollar (AUD). As a result, it is advised to wait for a persistent break below 0.6600 before positioning for more losses. Traders are now waiting for the US ADP report on private-sector jobs, which is expected later this month. The North American session, together with the overall risk mentality, should give some support for the AUDUSD pair.
