Anticipating Larger Fed Rate Cut Impact on USD
Last week, there was a significant buzz in the financial markets as WSJ’s Timiraos hinted at the possibility of a 50 basis points (bps) interest rate cut by the Federal Reserve. This news caused a surge in market expectations, with the probability of a 50 bps cut jumping from 13% to around 40%. Timiraos, known as a Fed “insider,” has a track record of providing valuable insights into potential Fed decisions, making his articles closely monitored by investors and traders.
Following Timiraos’ article, the camp advocating for a 50 bps rate cut grew stronger, leading to a consensus of around 70% probability for a 50 bps cut at the upcoming Fed meeting. Additionally, there is anticipation of a total of 120 bps of easing by the end of the year. This repricing of expectations has put pressure on the US Dollar, causing Treasury yields to decline further.
Once the Fed makes its decision, attention will shift back to economic data. Positive economic indicators could prompt the market to reassess the aggressive easing expected in 2025, potentially providing support for the greenback in the short term.
On the other hand, the Reserve Bank of Australia (RBA) is expected to maintain its current policy stance, with a 91% probability of no change at the upcoming meeting. The market forecasts a total of 21 bps of easing by the end of the year for the RBA, as inflation struggles to reach the target range and the labor market remains resilient.
AUDUSD Technical Analysis
Daily Timeframe
Looking at the daily chart for AUDUSD, we can observe a bounce around the 0.6650 level, followed by a rally above the key resistance at 0.67. This upward movement has strengthened the bullish momentum in the pair. Buyers are now targeting the 0.68 level, where we may see sellers stepping in to push the price back towards 0.67. Traders are advised to watch for a defined risk above the 0.68 level to position for a potential retracement.
4-hour Timeframe
Switching to the 4-hour chart, the bullish momentum in AUDUSD has intensified as the price broke above the 0.67 resistance and a trendline. More buyers have entered the market, while sellers have adjusted their positions. With limited insights on this timeframe, traders should zoom in for more detailed analysis.
1-hour Timeframe
On the 1-hour chart, we can see an upward trendline supporting the current bullish momentum in AUDUSD. Buyers are likely to continue relying on this trendline for further upside potential, while sellers may look for a break below the trendline to initiate short positions targeting a drop back to the 0.67 level. The red lines on the chart represent the average daily range for the day, providing key reference points for intraday trading.
Upcoming Catalysts
In the coming days, several important economic indicators are scheduled for release. Today, investors will be closely watching the US Retail Sales and Industrial Production data. Tomorrow, all eyes will be on the Federal Open Market Committee (FOMC) Rate Decision. On Thursday, market participants will be monitoring the Australian Labor Market report and the latest US Jobless Claims figures for further insights into the economic landscape.
