Rebounding from yesterday's seven-day low, AUD/USD appears set to remain in its familiar 0.7000/0.7200 range after today's U.S. Q1 GDP release rattled the greenback and U.S. interest rate complex. The upside headline GDP surprise initially spiked AUD/USD down but the big downside core PCE miss reversed the fall nL1N2280CC.
The ensuing rally drove AUD/USD above 0.7060 and the rally might now extend toward April's high. A deeper look at the GDP report revealed a picture that was less robust than initial appearances. That combined that with the unexpectedly soft core PCE, a key inflation indicator for the Fed, produced weakness in Treasury yields and the greenback.
Price rallies in eurodollar and fed funds futures increased the odds of Fed rate cuts FEDWATCH, leading to a reduction in U.S.
dollar long positions.
Those price rallies mirror Australian short-term rate market prices RBAWATCH suggesting RBA cuts are likely this summer.
With both Fed and RBA cuts expected and greenback sales possible, prospects for AUD/USD downside have diminished.
The April 25 break to new lows might turn out to be false and AUD/USD could hold the familiar 0.7000/0.7200 range for now.
chart: Click here