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With RBA Minutes and central banks in focus, AUD/USD extends its three-day gain above 0.6700

Daniel Rogers

Sep 20, 2022 14:38

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AUD/USD accepts offers to achieve a fresh intraday high near 0.6735 during Tuesday's Asian session, extending the corrective comeback from the yearly low. In doing so, the Australian pair departs from typical pre-event restraint in the face of a light schedule and a variety of concerns.


However, the recently issued Australia weekly Consumer Confidence, as reported by ANZ Roy Morgan, rose 0.4% week-over-week, but failed to excite AUD/USD bulls because markets worry the Reserve Bank of Australia's (RBA) inability to defend aggressive rate moves.


Similarly, the recent fall in inflation expectations and the market's anticipation of the RBA's and People's Bank of China's (PBOC) measures had aided AUD/USD buyers in the past.


Notable is the fact that US inflation expectations, as measured by the 10-year breakeven inflation rate according to the St. Louis Federal Reserve (FRED) statistics, fell for the third consecutive day to a two-month low of approximately 2.34 percent by the end of Monday's North American trading session. Moreover, according to FRED data, the 5-year breakeven inflation rate plunged to 2.44 percent, its lowest level since September 2021. Concerns were raised regarding the unanticipated market response to the Fed's hawkish wagers. Given the drop in US inflation projections, concerns of a short squeeze in the Aussie-U.S. dollar pair receive considerable attention, allowing the AUD/USD to sustain its momentum.


However, US President Biden's willingness to defend Taiwan if China attacks Taiwan and hawkish expectations for the Fed appeared to weigh on the AUD/USD exchange market ahead of significant monetary policy announcements. In response to US Vice President Joe Biden's remarks, China's Foreign Ministry declared on Monday that Beijing "deplores and fiercely opposes this and has lodged strong concerns."


In light of these circumstances, the CME's FedWatch algorithm forecasts an 82% chance of a 75-basis-point rate hike at the monetary policy meeting on Wednesday. In addition, the tool says that there is an 18% likelihood that the Fed's rate would raise by one percent. Wall Street ended on a high note, allowing S&P 500 Futures to record slight gains as traders prepare for the opening of the real markets. Additionally, US Treasury interest rates remain positive near the multi-day peak.


Prior to the release of secondary US home market data, AUD/USD buyers may be interested in the RBA Minutes and the PBOC's anticipated rate cut. Nonetheless, the Federal Open Market Committee meeting on Wednesday merits the highest attention (FOMC).