On Friday (February 7th), before the European market opened, the AUD/USD closed for the second consecutive day, but the trade relations between the United States and other major economies continued to change, especially in terms of potential changes in domestic economic data and monetary policy, providing some support for the Australian dollar.

US Economy and Monetary Policy

The performance of the US economy is one of the important factors affecting the US dollar exchange rate. Recent US economic data indicates that the US economy is maintaining relatively stable growth. However, the market's focus has shifted towards the direction of the Federal Reserve's monetary policy. The Federal Reserve may continue to raise interest rates to address inflationary pressures, but there is some divergence in market expectations for rate hikes. As the growth rate of the US domestic economy slows down, the pace of interest rate hikes by the Federal Reserve may also be limited, which constrains the US dollar and provides upward space for the Australian dollar.

Monetary Policy of the Reserve Bank of Australia

The current interest rate policy of the Reserve Bank of Australia remains a key factor affecting the Australian dollar. The market generally expects the Reserve Bank of Australia to lower interest rates from 4.35% to 4.10% in February. Since November 2023, the Reserve Bank of Australia has maintained the official cash rate (OCR) at 4.35% and has explicitly stated that further monetary policy easing will only be considered when inflation can "sustainably" return to the target range of 2% -3%. Therefore, the market is full of expectations for the upcoming interest rate adjustment, which may lead to increased depreciation pressure on the Australian dollar. Especially in the context of a complex global economic situation, analysts believe that the downside risk of the Australian dollar remains significant.

Market expectations and the trend of the Australian dollar

Although the current market generally expects the Reserve Bank of Australia to cut interest rates, the Australian dollar has maintained a relatively strong performance to some extent. The market currently expects a 95% probability of the Reserve Bank of Australia cutting interest rates, which suggests that the Australian dollar's resilience in the short term may be suppressed.

Technical analyst interpretation:

From a technical perspective, the Australian dollar/US dollar is currently oscillating and consolidating around 0.6280, still maintaining above the 9-day and 14 day moving averages. This technical trend shows stronger upward momentum in the short term. Especially within the current trading range, the 14 day Relative Strength Index (RSI) remains above 50, indicating that the overall trend of the Australian dollar/US dollar is leaning towards an upward trend.

Against this technological backdrop, the AUD/USD is expected to test its 7-week high of 0.6330, which was previously touched on January 24th. If the exchange rate breaks through this level, it may further push prices higher and develop towards higher regions.

On the downside side, the first support level for the Australian dollar/US dollar is around the 9-day moving average at 0.6260, followed by the support level at the 14 day moving average at 0.6254. If the exchange rate falls below these key support levels, it may weaken the current bullish trend and cause the exchange rate to further decline.

If the exchange rate effectively falls below these support levels, especially the support line around 0.6250, it may cause the Australian dollar/US dollar to fall towards 0.6087 (the lowest point since April 2020, briefly touched on February 3). If this level is breached, it may mean that the Australian dollar/US dollar will face greater downward pressure and even lead to a long-term bear market trend.

summary

Overall, the current technical performance of the Australian dollar/US dollar shows some short-term upward momentum, especially with the support of the 9-day and 14 day moving averages, where the bullish trend still dominates in the short term. However, fundamental interest rate expectations and changes in the global economic environment still bring some uncertainty to the Australian dollar. The market is paying attention to possible technological breakthroughs and fundamental changes in the coming days, especially after the Reserve Bank of Australia's interest rate decision, the trend of AUD/USD may usher in a clearer direction.