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  • Improved market sentiment helps AUD gather strength.
  • Upbeat housing data from the U.S. support the USD.
  • US Dollar Index posts modest gains above 96.60.

The AUD/USD pair closed the first day of the week above 0.7100 and gained traction on Tuesday to touch a fresh 5-day high of 0.7135. As of writing, the pair was trading at 0.7133, adding 0.3% on a daily basis.

Although the greenback seems to be gathering strength today, the risk-on mood amid a decisive recovery seen in the U.S. T-bond yields helps the risk-sensitive currencies such as the AUD grab investors’ attention and support the pair’s daily advance.  Additionally, Reserve Bank of Australia  Assistant Governor (Economic) Luci Ellis earlier in the day sounded optimistic on the labour market outlook by saying that the labour market in Australia had ‘unambiguously’ improved and arguing that some of the drags on income were not likely to be permanent and boosted the currency.

In the second half of the day, the data from the U.S. showed that housing starts declined by less than expected in February and housing prices rose 0.6% in January to beat the market expectation for an increase of 0.3%. The upbeat data coupled with rising T-bond yields helped the US Dollar Index break above its tight daily range near 96.50 and seems to be capping any potential further gains for the time being.   At the moment, the DXY is up 0.22% on the day at 96.72.

In the Asian session on Wednesday, the RBNZ is scheduled to announce its monetary policy decisions. Although no changes to the policy or any surprise announcements regarding the policy outlook are expected, any sharp reactions in the NZD/USD pair could impact the strongly-correlated AUD/USD pair as well.

Technical levels