AUD/USD defies hawkish Fed officials, surges on soft USD and falling bond yields

• Hawkish comments by Fed policymakers capped the Australian Dollar rally.
• China’s economic data foreseeing solid growth is a tailwind for the AUD/USD.
• RBA minutes showed that their latest meeting decision was a hawkish hold.

AUD/USD caps its two-day downtrend at around the 20-day EMA and climbs toward the 50-day EMA, bolstered by a soft US Dollar (USD), which is undermined by falling US Treasury bond yields. Federal Reserve officials continued reinforcing their hawkish posture, but investors have ignored it. At the time of writing, the AUD/USD is trading at 0.6726.

Despite a sour sentiment, the Australian Dollar gains on a soft US Dollar

After falling to weekly lows at around 0.6681, buyers entered the market as the AUD/USD reclaimed 0.6700. On Tuesday, two Fed officials reiterated that the Fed needs to raise rates, coinciding that a recession is not the baseline scenario for both. However, St. Louis Fed President James Bullard expects the Federal Funds Rate (FFR) to end between the 5.50%-5.75% range.

Most US Treasury bond yields dropped, except for the 2-year, which sits at 4.218%, erasing its earlier losses, following Monday’s gains of 10 bps. Hence, the greenback remains pressured, as shown by the performance of a basket of six currencies vs. the US Dollar, namely the US Dollar Index, down 0.34% at 101.752.

Although market participants are bracing for a 25 bps rate hike by the Federal Reserve, as shown by the CME FedWatch Tool odds at 86.7% chance, the US Dollar could not extend its gains to three consecutive days.

The US economic agenda featured Housing Starts for March, which decreased by 0.80% MoM after a 7.3% surge in the prior’s month. In the meantime, Building Permits plunged 8.8%, missing estimates of a gain of 1.45%, though figures for February.

On the Australian front, China’s data underpinned the Australian Dollar (AUD). China’s GDP grew 4.5% YoY in Q1, crushing the latest 2022 quarter of 2.9%. Retail Sales jumped 10.6%, while Industrial Production missed estimates of 4% at 3.9%.

Furthermore, the Reserve Bank of Australia (RBA) monetary policy minutes showed that the board discussed a possible 25 bps rate hike, though they decided to keep rates unchanged at 3.60%. Of note, the minutes included comments that inflation “remained too high and the labor market was very tight,” a signal that the RBA kept the door open for further tightening.

AUD/USD Technical Analysis

Even though the AUD/USD fall was capped at the 20-day EMA, the pair remains neutral to downward biased. For a bullish resumption, the AUD/USD must break the 50-day EMA at 0.6735, exposing the 100-day EMA at 0.6756. Once cleared, the 0.6800 psychological level would be up for grabs. Contrarily, if AUD/USD slides back below 0.6700, expect a bearish continuation. The first support would be the weekly low of 0.6681, followed by a one-and-a-half-month upslope support trendline at 0.6630. Break below, and 0.6600 will be next.