Australian Dollar soars ahead of Fed meeting

• AUD/USD soars due to a less hawkish Fed and a more hawkish RBA stance.
• Fed rate cut talks depreciate the US Dollar due to increased odds of 50 bps cut in Wednesday's meeting.
• Lower US yields also weigh on the US Dollar.

The Australian economy faces a complex outlook amid rising inflation and a cautious central bank. Despite initial expectations of interest rate cuts, the Reserve Bank of Australia's hawkish stance has prompted markets to anticipate only a modest 25 bps reduction in 2024.

Daily digest market movers: Australian Dollar rises sharply on Fed rate cut uncertainty and RBA's hawkish stance

• The Australian Dollar gained on Monday, influenced by the RBA's hawkish stance and uncertainty surrounding the Fed's interest rate decision on Wednesday.
• With inflation remaining elevated, RBA Governor Michele Bullock emphasized the need for caution and indicated that rate cuts remain premature.
• Due to uncertainty over the magnitude of the Fed's rate cut at its Wednesday meeting, US Treasury yields fell, exerting downward pressure on the US Dollar.
• The CME FedWatch Tool indicates a 40% probability of a 25 bps rate cut and a near 60% chance of a 50 bps reduction.

AUD/USD technical outlook: Bulls must take the 20-day SMA to confirm a recovery

The AUD/USD pair has been trading with a mixed outlook in the past sessions. The Relative Strength Index (RSI) is at 55, suggesting that buying pressure is rising. The Moving Average Convergence Divergence (MACD) red bars are decreasing, suggesting that selling pressure is declining but steady. A consolidation above the 20-day Simple Moving Average (SMA) at 0.6735 could be considered a buying signal, which would confirm a bullish outlook for the short-term.