AUD/USD holds in bearish territory below 0.7400 after RBA minutes

• So far, 0.74 the figure is blocking progress following the RBA minutes.
• The Aussie has succumbed to higher US yields and a strong US dollar.

At 0.7378, AUD/USD is up 0.43% on the day and has travelled between a high of 0.7399, (peaking here following the Reserve Bank of Australia minutes), and a low of 0.7343. 

The Aussie, however, has succumbed to the mighty US dollar that remains firm as US rates continue to rise. The DXY index is up for the fourth straight day and made a new cycle high near 101.023. The March 2020 high near 103 is the next big target. This index measures the greenback against six other currencies and is being supported by the divergence in monetary policy between a Federal Reserve determined to keep a lid on soaring inflation and major counterpart central banks such as the Bank of Japan and the European Central Bank. 

US yields are lit

Meanwhile, the US benchmark 10-year Treasury yields hit 2.928% on Tuesday, the highest since December 2018 and are on track to test the October 2018 high near 3.26%. ''With inflation expectations remaining fairly steady, the real 10-year yield traded near -0.04% today, the highest since March 2020 and poised to move into positive territory for the first time since the pandemic began,'' analysts at Brown Brothers Harriman explained. ''The 2-year is still lagging a bit but traded at 2.47% today, not yet matching the 2.60% cycle high from earlier this month but still on track to test the November 2018 high near 2.97%.'' 

US rates have made a further push higher on Monday-Tuesday as the Fed's Jim Bullard didn't rule out a 75bps hike by the Fed. He reiterated that he wants to get rates up to 3.5% quickly, noting “You can’t do it all at once, but I think it behoves us to get to that level by the end of the year.” 

He added that “more than 50 bp is not my base case at this point.  I wouldn’t rule it out, but it is not my base case here.”  Additionally, he said, “we want to get to neutral expeditiously, I guess is the word of the day.  I’ve even said we want to get above neutral as early as the third quarter and try to put further downward pressure on inflation at that point.” 

''While it’s easy to dismiss Bullard as excessively hawkish, we should all remember that he was the first to push for aggressive tightening and the rest of the Fed eventually came around to his view,'' analysts at BBh said.

Meanwhile, Charles Evans, Chicago Fed President spoke on Tuesday and said that there is good reason to think the US economy will do very well even as rates rise. He added that the Fed needs to be mindful of a possible wage-price spiral when noting that Fed needs to monitor this. 

RBA minutes fail to send AUD through the 0.74 barrier

While the RBA minutes confirmed the bank’s hawkish pivot, AUD peaked a pip away from 0.74 the figure after the currency  succumbed to broad-based USD gains

Two things stand out from the April RBA Minutes, analysts at ANZ Bank said as being the following:

Meanwhile, analysts at BBH argued that the ''odds of liftoff at the May 3 meeting are less than 20% but liftoff at the June 7 meeting is fully priced in.''

AUD/USD technical analysis

AUD/USD was meeting a dynamic trendline support line and the bulls were eyeing a 38.2% Fibonacci retracement and a higher 50% mean reversion towards 0.7420. So far, 0.74 the figure is blocking that progress. In any case, the downside is eyed if there are continued failures between here and 0.7420 and a break of the trendline and horizontal support could be on the cards for the days ahead.