Title: AUD/USD climbs beyond 0.6500 mark, fresh three-week high amid subdued USD demand

October 27, 2022 02:05 AM ET

By: AnalysisWatch

The AUD/USD pair was bought near the 0.6470 area on Thursday and reached a new three-week high at the start of the European session. The pair is currently above the psychological 0.6500 level and is well supported by a combination of factors.

The Australian dollar is supported by resurgent bets on more aggressive monetary tightening by the Reserve Bank of Australia, which were underpinned by stronger consumer inflation figures released on Wednesday. For example, the Australian Bureau of Statistics (ABS) reported that the consumer price index rose 1.8% in the September quarter and the annual rate accelerated to 7.3%—the highest level since 1990. The U.S. dollar, on the other hand, is hovering near its lowest level since September 20, providing additional support to the AUD/USD pair.

Market participants now expect that the deteriorating outlook for the U.S. economy will force the Federal Reserve to slow the pace of its rate hike cycle. This is reinforced by the recent sharp decline in U.S.

government bond yields and continues to weigh on the dollar. Apart from this, the risk impulse continues to dampen demand for the safe-haven buck and favors the risk-sensitive Aussie. This, in turn, provides additional upside to the AUD/USD pair, even if the uptrend is not convincing.

Traders now appear cautious and may prefer to move to the sidelines ahead of the release of the US third quarter GDP report, which is scheduled for release during the early North American day. Thursday's U.S. schedule also includes new orders for durable goods and weekly initial jobless claims. Together with US bond yields, this will influence the USD and give some lift to the AUD/USD pair. Apart from that, the general risk sentiment could help to create trading opportunities.