The Australian dollar's uptrend received a boost from the market's reaction to the likelihood of a Democrat-controlled U.S. Senate nL1N2JH0OO, but significant gains beyond 0.8000 may be hard to come by.
The Democrats' sweep in Georgia will likely lead to more fiscal stimulus in the U.S., which will be positive for global growth and key commodity prices. Wall Street moved higher Wednesday, despite the scenes of chaos in Washington nL1N2JH25T, on a view that the Democrats' razor-thin Senate majority will cap efforts to pursue higher taxes and greater regulation.
Higher equity prices increase the appeal of risk currencies such as the AUD nL1N2JH2YB.
But prospects of an increase in U.S. fiscal spending are starting to push up Treasury yields at the back end of the curve, which could make the dollar more attractive nL1N2JH1N4nL1N2JH1O3. Yields on long-end Australian government bonds are limited by the RBA's yield curve control policy, so there is scope for rate differentials to widen in favour of the USD.
Fading the AUD/USD rally is not advised at present, as the trend is clearly higher with the 5, 10 and 21-day moving averages aligned in a bullish formation. The 2018 high at 0.8136 is the objective of the current move, while the ascending 21-day MA (0.7615) remains intact.
But the RBA may start to jawbone the AUD/USD lower as it approaches 0.8000.
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