Home Forex Market Analysis AUDUSD Drops as RBA Quashes Rate Hikes Until 2024 as USDCAD Retakes...

AUDUSD Drops as RBA Quashes Rate Hikes Until 2024 as USDCAD Retakes 1.2500

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AUDUSD Drops as RBA Quashes Rate Hikes Until 2024 as USDCAD Retakes 1.2500
  • USD dollar strengthens to 16-month highs.
  • AUDUSD tanks following RBA remarks.
  • USDCAD bounces back on dollar strength.

The US dollar bounced back on Monday and remains on the front foot on Tuesday at 16-month highs. The dollar index, which measures the greenback strength against a basket of other major currencies, has already powered through the 95.00 handle to highs of 95.50, affirming dollar strength.

Growing concerns about global growth have mostly fueled the dollar strength across the board amid runaway inflation. Concerns about monetary policy expectations have also forced traders into safe-havens sending the dollar higher. Looking ahead focus is on the release of US retail sales, which could provide hints on the strength of the US economy.

AUDUSD under pressure

The renewed dollar strength is the catalyst putting pressure on the AUDUSD pair, whose upward momentum appears to have stalled. The pair started the week on the front foot supported by solid economic data from its biggest customer China. However, downbeat Aussie jobs appear to have curtailed any further price swings above a key resistance level.

The pair has since been rejected above the 0.7366 level, from where it has started edging lower.

Chart showing AUDUSD descending channel

A sell-off followed by a close above the 0.7340 could pave the way for the pair to edge lower as the bearish pressure continues to build up. The next support level on the renewed sell-off is at the 07319 level. On the flip side, a bounce-back followed by a close above the 0.7350 could pave the way for the pair to bounce back to the 0.7366 level, which has emerged as a key resistance level.

The momentum on the AUDUSD pair is to the downside following remarks by the Reserve Bank of Australia Governor Philip Lowe. The governor reiterating there are no plans to raise interest rates in a bid to control house price continues to pile pressure on the Australian dollar, consequently sending the AUDUSD pair lower.

According to Lowe, rate hikes will only come into play once the wages and jobs meet the central bank target. The dovish remarks suggesting rate hikes will not come until 2024 should continue to weigh on the Australian dollar against the majors.

USDCAD bounce back

Meanwhile, the Canadian dollar is yet again under pressure against the dollar after two days of gains. The USDCAD pair has since bottomed out of four days low at 1.2490, with bulls resuming control. A rally followed by close above the 1.2500 level has once again renewed suggestion of further price gains.

Chart showing AUDUSD descending channel

The 1.2493 has emerged as the short-term support level above which the USDCAD pair remains well supported for further upside action. With bulls in control, the pair could make a run for 1.2530, the next substantial resistance level.

The USDCAD is powering high as market participants continue to shrug off a spike in oil prices after US oil initially dropped below the $80 a barrel level. Oil prices have been the main catalyst helping the Canadian dollar shrug off dollar strength across the board.

However, with the dollar strengthening to a 16-month high amid push for rate hikes in the US, the upward momentum on the USDCAD looks set to gather steam going forward. The US treasury yield bouncing back to three-week highs looks set to continue fuelling dollar strength which could see the USDCAD edging higher.

Looking forward, the focus is on the release of US retail sales data for October, which could significantly impact the dollar, consequently influencing USDCAD price action. Additionally, ongoing talks between President Joe Biden and Chinese counterpart Xi Jinping also look set to offer direction on the USDCAD.

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