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  • AUD/USD is in the hands of the bulls on a weaker US dollar.
  • The Fed passed by with little new to offer, but the US dollar continues to slide.

AUD/USD has climbed to print a fresh high within the 0.7144 and 0.7289 range, currently trading at 0.7274 in the aftermath of the Federal Reserve meeting.

There was little to the event today with the FOMC leaving rates and bond-buying unchanged. The outcome was fully expected. 

The emphasis is on easing and additional stimulus required from the US government, pressuring the greenback lower this week.

Indeed, the US elections have been a positive environment for the higher betas which have tracked a surge in equities, pricing in a relief rally on a Joe Biden victory. 

The risk-on conditions are playing out despite the indications that have pointed a to a Biden presidency absent the ‘blue wave’ that markets had been expecting.

Instead, what we have is more of a ‘blue ripple’ with those prospects of the GOP keeping the Senate that had perhaps prevented more of an explosive rally in markets.  

Can the US dollar rebound?

Given the political animosity, a substantial near-term fiscal support package is less likely at a time when incomes are being squeezed.

Subsequently, US dollar bears could find some tough challenges ahead.

Rising Covid cases mean containment measures are looking more likely.

Moreover, ”while the market’s a-priori assumption is that a Biden victory and Republican Senate will translate into a return to foreign policy orthodox, the election-day relief rally should also be weighed against the COVID-19 wave sweeping across the globe,” analysts at TD Securities argued. 

This all could leave the Aussie bulls unstuck if the US dollar wages war across the G10 space, catching the market off guard. 

”In FX, it is about the search for carry or any positive idiosyncratic stories that differentiate a country from the “low growth, low inflation, stuck politics” pack,” analysts at Deutsche Bank explained.

”There is very, very little carry left in G10 FX but three countries that stand out with a positive growth outlook for the next few months are Australia, Sweden and Norway.”

In a recovery of the US dollar, AUD/USD, which is currently enjoying the relief rally and likely a flight to carry could find that there is still more to be done on the downside within a bearish correction on the monthly time frame. 

AUD/USD technical analysis

Bulls need to clear the monthly resistance of 0.7420 to be fully out of the woods.

The following chart illustrates the two probable scenarios, bullish and bearish, from a monthly perspective.