The AUD/USD currency pair remains firmly positioned near the 0.67 mark, reflecting a consolidation of recent gains amid rising concerns regarding the independence of the US Federal Reserve. This development has contributed to a notable weakening of the US dollar, even as the pair has experienced slowed upside momentum following a brief losing streak earlier in the trading session.
The US dollar’s decline has intensified due to reports of an ongoing investigation by the US Department of Justice involving Federal Reserve Chair Jerome Powell. This situation has unsettled markets, raising alarms about potential political interference in US monetary policy. As a result, the dollar’s ability to recover has been hampered, allowing currencies like the Australian dollar to gain strength due to more stable policy expectations.
Investor Confidence Dips as Fed Faces Political Scrutiny
The ongoing tensions between President Donald Trump and the Federal Reserve have negatively impacted investor confidence in the US dollar. Powell has publicly countered the allegations surrounding the investigation, describing them as politically motivated and reiterating the Federal Reserve’s commitment to making decisions based on data rather than political pressure.
Market reactions have been cautious, with a higher political risk premium being factored into US assets. This evolving sentiment has kept the US Dollar Index under pressure, allowing the AUD/USD to stabilize near recent highs. The focus now shifts to upcoming US Consumer Price Index (CPI) data, set to be released on October 31, 2023, which may either bolster the current dollar weakness or prompt a reevaluation of Federal Reserve rate expectations.
Divergence in Monetary Policy Drives Australian Dollar Strength
The strength of the AUD/USD pair is also attributed to the ongoing divergence in monetary policy between the Federal Reserve and the Reserve Bank of Australia (RBA). While the Federal Reserve is expected to adopt a gradual easing approach through 2026, expectations for Australian rates remain comparatively robust. Recent inflation figures from Australia have consistently surpassed the RBA’s target range of 2-3%, with officials indicating that further rate cuts are unlikely in the near future.
Although Australia’s economic calendar appears relatively quiet this week, data related to consumer confidence and inflation expectations will likely play a role in shaping the near-term sentiment for the Australian dollar. Additionally, developments in China’s trade data will be closely monitored, given Australia’s significant economic ties with Beijing.
From a technical standpoint, AUD/USD is currently in a consolidation phase within a rising structure on the daily chart. The price remains above the 20-day moving average, and the expansion of the Bollinger Bands indicates controlled volatility rather than trend exhaustion. Immediate resistance is identified in the 0.6750–0.6760 range, while initial support is seen at 0.6680, with deeper support located around the 0.6600–0.6620 zone.
Momentum indicators suggest a generally positive outlook. The MACD remains in positive territory, though it is flattening slightly, indicating that while upside momentum has slowed, there is no clear bearish signal at this juncture. A sustained break above 0.6760 would enhance the bullish case for the Australian dollar, whereas a close below 0.6680 could lead to a deeper pullback.
The near-term outlook for AUD/USD appears cautiously optimistic, contingent on the pair maintaining its position above key support levels while US dollar sentiment remains fragile. While further consolidation is possible ahead of the US inflation data release, the overall bias leans towards resilience rather than a sharp reversal.
In summary, the current strength of AUD/USD can be attributed to the ongoing concerns regarding the independence of the Federal Reserve and the relatively firm expectations surrounding Australian monetary policy. Observers will be keenly watching for potential market movements stemming from upcoming economic data releases in both the US and Australia.
