The Australian dollar experienced a downward gap at the beginning of the trading session on Monday, yet subsequently demonstrated indications of resilience. That being said, later in the day, we have observed a slight increase in interest rates in the United States, which has exerted additional pressure on the Australian dollar. Currently, it appears probable that downward pressure will persist due to numerous concerns emerging from the Middle East, coupled with the notion that the supply chain may remain disrupted for an extended period. Traders are pursuing elevated yields in America, and it appears they are also attempting to incorporate the notion that the Federal Reserve might need to maintain a tighter stance for an extended period.
The Federal Reserve is regarded as the central bank of the world. By maintaining tight interest rates, it strengthens the dollar, thereby complicating debt funding and liquidity access for other nations through the Eurodollar system. Australia finds itself in a delicate position, as it is relying on Asia’s economic recovery, which is, regrettably, heavily dependent on oil supplies that traverse the Strait of Hormuz. In other words, a significant disruption is on the horizon, and, frankly, certain countries in Asia are beginning to experience its effects. Australia is unlikely to deviate from this trend, and the pressure will persist.
Following the recent developments on Friday, there is a likelihood that the AUD/USD pair may decline to the 0.69 level, where we would encounter some structural support, alongside the 200-day EMA becoming relevant. Shorting this pair; however, a break above the 0.7150 level would indicate a shift in the current dynamics. Ultimately, the Australian dollar has demonstrated superior performance against the US dollar until the recent days, thus we will need to observe further developments. We would not allocate a significant position.