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  • A combination of factors pushed AUD/USD to fresh three-year tops on Thursday.
  • Powell’s dovish comments, the risk-on mood undermined the safe-haven USD.
  • Slightly overbought conditions on the daily chart capped the upside for the pair.

The AUD/USD pair traded with a mild positive bias through the early European session and was last seen hovering around the 0.7970-75 region, or three-year tops.

A combination of factors assisted the pair to build on its recent bullish momentum and edge higher during the first half of the trading action on Thursday. The Australian dollar benefitted from upbeat Private Capital Expenditure (Capex) data, which unexpectedly jumped 3% during the final three months of 2020.

Adding to this, the underlying bullish sentiment undermined the safe-haven US dollar and further drove flows towards the perceived riskier aussie. Investors remain optimistic about a strong global economic recovery amid the progress in COVID-19 vaccinations and US President Joe Biden’s $1.9 trillion stimulus package.

The USD was further pressured by Fed Chair Jerome Powell’s dovish comments, reassuring that interest rates would stay low for a long time. During his second day of congressional testimony on Wednesday, Powell reiterated that the Fed has no plans to cut back on money-printing or raise interest rates in the short term.

Powell also calmed fears about inflation and said that he will only start worrying if prices begin to rise in a persistent and troubling way. Meanwhile, the reflation trade, along with rising inflation expectations pushed the yield on the benchmark 10-year US bond to fresh one-year tops, albeit did little to impress the USD bulls.

That said, slightly overbought conditions on daily charts kept a lid on any further gains for the AUD/USD pair, at least for the time being.

Market participants now look forward to the US economic docket, highlighting the release of the Prelim (second estimate) Q4 GDP print. Apart from this, the US Durable Goods Orders data and speeches by influential FOMC members will influence the USD price dynamics. This, in turn, might produce some short-term opportunities around the AUD/USD pair.

Technical levels to watch

 

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