- AUD/USD stays on the front foot near intraday high as bulls cheer the biggest daily gains in almost two months.
- SVB-led risk-on mood joins receding hawkish Fed bets to drown US Dollar.
- Fresh fears surrounding US-China ties fail to derail risk-on mood.
AUD/USD bulls celebrate the biggest daily gains since early February around the 0.6665-70 hurdle during early Monday in Europe. The Aussie pair’s latest inaction could be linked to its struggle to overcome the five-week-old descending resistance line amid the broadly risk-on mood, as well as the US Dollar weakness.
While portraying the mood, S&P 500 Futures bounced off a 2.5-month low, up nearly 1.60% around 3,960 by the press time. It’s worth noting that the Asia-Pacific equities trade mixed as they’re yet to overcome Friday’s bond and stock market rout, as well as bear the burden of China-linked fears.
A new term for China’s President Xi Jinping keeps the Sino-American tension on the table as he said earlier on Monday that they must resolutely oppose the interference of external forces, ‘split’ of Taiwan. It’s worth mentioning that Wall Street saw the red on Friday while the US bond yields also dropped the most in a month amid fears emanating from the Silicon Valley Bank (SVB) fallout.
However, the US Treasury Department, Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) took joint actions to tame the risks during the weekend. While reacting to the US regulators’ actions, US President Joe Biden said, “American people and American businesses can have confidence that their bank deposits will be there when they need them.”
The fallout of the SVB and Signature Bank flagged fragile conditions of the US banks, which in turn pushed back hopes of more rate hikes from the US Federal Reserve (Fed). With this in mind, Goldman Sachs expects to rate hike in March while the Fed Fund Futures also cut previously upbeat odds favoring a 0.50% rate lift in the Fed rate in March.
Amid these plays, US Dollar Index (DXY) drops to the lowest level in a month, down 0.80% near 103.80.
Looking ahead, Tuesday’s US Consumer Price Index (CPI) for February to direct immediate market moves. Following that, the Retail Sales and preliminary readings of the Michigan Consumer Sentiment Index for March, up for publishing on Wednesday and Friday, will be crucial for AUD/USD traders to watch. At home, Thursday’s Aussie jobs report will be observed to reconfirm recent dovish bias surrounding the Reserve Bank of Australia (RBA).
Technical analysis
A five-week-old descending resistance line, around 0.6665 by the press time, challenges the AUD/USD bulls.
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The AUD/USD exchange rate has surged the most in nine weeks due to a combination of positive factors.
The risk-on mood led by the Federal Reserve and SVB helped propel the currency pair to the highest level since February. The Australian dollar rose by more than 1.3% against the greenback on the news, hitting 0.7449 at one stage. The move was the biggest single-day percentage gain since late January.
The positive mood has been driven by the Federal Reserve’s recent dovish stance as well as the Biden administration’s proposed $2 trillion infrastructure stimulus plan. This has provided some much-needed support for riskier assets, including the Aussie dollar.
Furthermore, the strong performance of the semiconductor market has also bolstered optimism in the markets, with SVB leading the way. Shares of the company surged after it announced that it would be expanding its production of chips for the semiconductor industry.
The combination of all these factors has contributed to the AUD/USD exchange rate’s strong performance. Analysts expect the pair to remain relatively strong in the near-term, given the strong fundamentals driving it.
In conclusion, the AUD/USD exchange rate has surged the most in nine weeks due to a combination of positive factors. The Federal Reserve’s dovish stance and SVB’s chip production expansion have helped to bolster risk sentiment in the markets and propel the pair to its highest level since February.
