• According to RBA’s Governor Philip Lowe, some scenarios are in line with the bank’s requirements to hike interest rates from 2024.
  • China’s efforts to curb commodity prices, including releasing its state reserves, are negative for AUD/USD. 
  • The currency pair is finding support in the better-than-expected Australian jobs data.

Fed interest rate decision, RBA meeting minutes

Late on Wednesday, AUD/USD plunged by about 1.41% as a reaction to the Federal Reserve’s interest rate decision. The central bank’s hawkish tone came as a surprise. In the recent past, the bank has maintained that the ongoing inflationary pressures are transitory. Subsequently, it highlighted its intention to allow inflation to run past its 2% target in the short term. 

However, the Fed has shifted its position by projecting two probable rate hikes by the end of 2023. While acknowledging the steady economic recovery, it is committed to its current asset purchase program for now. The Fed interest rate decision came a day after RBA meeting minutes. 

On Tuesday, the released minutes highlighted RBA’s dovish tone. According to the bank, Aussie remains range-bound even after surging by 40% since the onset of the coronavirus pandemic. Subsequently, the committee members unanimously agree that an accommodative monetary policy is needed even with the strong economic data.

However, during a speech on Thursday, RBA’s Governor Philip Lowe stated that some of the reviewed scenarios show the likelihood of meeting the bank’s requirements for interest rate hikes in 2024. At the same time, other setups are still way off. Subsequently, the governor has indicated that the bank will look at those scenarios in the coming month’s meeting. The details will assist in making a decision on extending the three-year yield target. 

Economists don’t expect the central bank to roll over the yield-target bond from the current maturity period of April 2024 to November 2024. Instead, it may maintain its QE program. Besides, the RBA is likely to factor in the Fed’s decision to accelerate its pace of tightening the monetary policy.       

Commodity prices

The Australian dollar is a key commodity currency whose price movements are largely impacted by the value of copper and aluminum. Notably, the decline in the prices of these commodities has exerted pressure on AUD/USD. 

Since the beginning of the week, copper prices have dropped by about 6.37%. At the time of writing, it was down by 1.88% at 4.3025. At the same time, aluminum prices have dropped by 2.16% at 2,418.50. 

Fed’s hawkish tone has boosted the US dollar to its two-month high at 91.71. Notably, a strengthening dollar is a bearish catalyst for various commodities, making it more expensive for buyers with other currencies. 

Besides, industrial metals have also been impacted by China’s efforts to curb commodity prices. In its latest move, the Middle Kingdom has indicated that it will release state reserves of various metals, including zinc, copper, and aluminum. 

Besides, the country’s Assets Supervision and Administration Commission has ordered state-owned enterprises to control their risk and exposure to international commodity markets.   

Australian job data

AUD/USD is finding support in the better-than-expected Australian job data. Earlier on Thursday, the Australian Bureau of Statistics indicated that the number of employed individuals rose by 115,200 in May. Analysts expected a reading of 30,000 after the employment numbers dropped by 30,600 in April. 

Subsequently, the country’s unemployment rate is now at 5.1%, down from 5.5% in April. Notably, the figure has come in better-than-expected since July 2020. Besides, the level of unemployment has steadily declined since November 2020. 

AUD/USD technical outlook

AUD/USD has eased after the Fed’s hawkish surprise on Wednesday caused it to plunge. After hitting an intraday high of 0.7716, the currency pair dropped to 0.7597 earlier on Thursday. 

Notably, Thursday’s intraday low is its lowest level since mid-April. It has since recouped some of those losses even as it struggles to reach 0.7650. At the time of writing, it was up by 0.14% at 0.7620. On a two-hour chart, it is trading below the five and ten-week Exponential Moving Averages.

AUD/USD chart

I expect AUD/USD to continue finding support at 0.7600 for the remainder of the week. In the near term, it may rise to 0.7650, where it is likely to experience some resistance. Above that level, the next target will be along with the 50-day EMA at 0.7716, which is also a Wednesday’s high. 

On the flip side, a move below Thursday’s low of 0.7597 can have the bears retesting April’s low of 0.7530.