On Wednesday, the Australian Dollar (AUD) rebounded after a three-day decline, recovering from mid-November lows. However, hawkish comments from Federal Reserve (Fed) officials and an influx of safe-haven flows could strengthen the US Dollar (USD), potentially capping the AUD/USD upside in the near term.
The AUD gained momentum as the ASX 200 Index recovered from three consecutive days of losses. Yet, AUD faced challenges, possibly due to investor risk aversion amid cautious anticipation of Israel's response to Iran's recent air strike.
A Reuters report mentioned a postponement of Israel's war cabinet meeting, originally scheduled for Tuesday, to Wednesday to determine a reaction to Iran's attack. Meanwhile, Western allies are contemplating swift imposition of new sanctions against Tehran to deter further escalation by Israel.
The US Dollar Index (DXY) retreated from Tuesday's five-month high of 106.51, partly attributed to a slight decline in US Treasury yields. Fed Chairman Jerome Powell's comments on Tuesday, suggesting minimal progress on inflation this year and a longer timeline to reach the 2% target, may have reinforced a hawkish stance, providing support to the US Dollar.
Technical Analysis: The Australian Dollar remains above the key support level of 0.6400, trading around 0.6420 on Wednesday. The 14-day Relative Strength Index (RSI) indicates bearish sentiment for the AUD/USD pair, staying below the 50 level.
Key resistance is seen at the 23.6% Fibonacci retracement level of 0.6449, aligning with the significant level of 0.6450. A breakthrough above this level could strengthen the pair's momentum towards testing the nine-day Exponential Moving Average (EMA) at 0.6480 and the psychological barrier of 0.6500. On the downside, notable support lies at the psychological level of 0.6400. A breach below this level might amplify downward pressure on the AUD/USD pair, potentially leading it towards the major support level at 0.6350, followed by November's low at 0.6318.
Paraphrasing text from "FX Street" all rights reserved by the original author.
