Forex Market: AUD/USD rebounds from 28-month low, but pressure from stronger greenback remains

Having touched a fresh 28-month trough on Monday, AUD/USD saw a certain rebound on Tuesday, as oversold investor positions were pared and volatility eased a bit.

But since the US Dollar remained firm on expectations US interest rates will probably stay higher for a longer period, risk-sensitive currencies such as the Aussie were still experiencing some pressure.

“The darkening outlook for the global economy will weigh on commodity prices and commodity currencies,” Carol Kong, a senior associate currency strategist at CBA, said.

“The pick‑up in financial market volatility is correlated with a weaker AUD, too. In the current environment, AUD can reach our Q1 2023 forecast of $0.62 early.”

Markets have now priced in another 50 basis point rate hike by the Reserve Bank of Australia next week and interest rates peaking at around 4.45% by mid-2023.

Meanwhile, the Dollar Index eased from a 20-year peak of 114.58 and was last down 0.39% on the day to 113.662.

“Everyone’s got this hope that the dollar is peaking and peaking and peaking, but it’s just been far too premature,” Paul Mackel, global head of Forex research at HSBC in Hong Kong, was quoted as saying by Reuters.

“The Fed is firmly hawkish and global growth is weakening, and you put those forces together alongside higher elements of risk aversion – it’s all pointing to a strong dollar if not a strengthening dollar.”

As of 9:12 GMT on Tuesday AUD/USD was edging up 0.34% to trade at 0.6476. Yesterday the major Forex pair went down as low as 0.6437, which has been its weakest level since May 18th 2020 (0.6410).

Bond Yield Spread

The spread between 2-year Australian and 2-year US bond yields, which reflects the flow of funds in a short term, equaled -67.6 basis points (-0.676%) as of 8:15 GMT on Tuesday, down from -64.9 basis points on September 26th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 0.6477
R1 – 0.6516
R2 – 0.6577
R3 – 0.6616
R4 – 0.6655

S1 – 0.6415
S2 – 0.6376
S3 – 0.6315
S4 – 0.6253