The Australian dollar was the main beneficiary of the dovish signals emanating from the Federal Reserve meeting on Wednesday and may be starting a significant move to the upside in coming weeks.

While the market is pricing in the end of the Fed's tightening cycle, expectations are building for the Reserve Bank of Australia to hike rates by 25 basis points to 4.35% at the Nov 7 meeting.

Investors have been focussed on the rise in U.S. 10-year Treasury yields, but their Australian peers have seen a more dramatic surge. Since the start of September, the 10-year Australian government bond yield has risen 76 bps, while the 10-year Treasury yield had gained 56 bps as of Wednesday's close.

External factors are mixed, as the Australian dollar is a proxy for China sentiment and the latest PMI surveys show Chinese factory activity contracted in October.The AUD could however benefit from a rise in risk appetite due to the potential for a monetary policy pivot from the Fed and European Central Bank in 2024.

The AUD/USD has clearly broken above the 55-day moving average at 0.6394 - the first time it has been above that reading since Aug 1. A break above key resistance at 0.6509, the 38.2 Fibonacci retracement of the July-October drop, would confirm a medium-term bottom is in place for an extended rise.

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