AUD/USD snaps four days of losses and clings to 0.7120s despite a buoyant US dollar

• The Australian dollar is recording gains of 0.09% vs. the greenback.
• China’s Covid-19 outbreak appears to be capped as Shanghai prepares to ease restrictions.
• Russia would remain fighting with Ukraine until achieving its goals.
• Australia’s inflation hits a 20-year high, will the RBA act?
• AUD/USD Price Forecast: Further downside expected if AUD bulls fail to reclaim 0.7200.

On Wednesday, the Australian dollar prints modest gains after fluctuating in a 100-pip range as US equities finished with gains, reflecting an upbeat market sentiment throughout the North American session. The AUD/USD is trading at 0.7127.

Wall Street closed with gains between 0.19% and 0.73%, while the greenback remains buoyant, as the US Dollar Index illustrates, up by almost 0.70% back above the 103.000 mark. US Treasury yields, led by the 10-year benchmark note, gained ten basis points and finished at 2.826%.

Shanghai will ease lockdowns, and Russia to fulfill its military goals

During the day, the market mood fluctuated though it shifted positively in the overlap of the European/US sessions. China’s Covid-19 outbreak in the last two weeks has weighed negatively since the beginning of the week. Last reports from China said that Shanghai is about to ease lockdowns restrictions despite the covid zero-tolerance. At the same time, Beijing, struck by the virus over the weekend, reacted fast and is already testing a substantial amount of people.

Geopolitics-wise, the Russia-Ukraine conflict remains. On Wednesday, the Russian President Vladimir Putin expressed that Russia will fulfill its military goals and emphasized that any country interfering in Ukraine will be met with a “lightning-fast” response, using “tools no one else can boast of having.”

Australian inflation to “motivate” the RBA to hike rates

Earlier in the Asian session, the Australian Consumer Price Index (CPI) came hotter than foreseen and reached a 20-year high, lifting the AUD/USD cross towards 0.7190s. Across the pond, March’s Pending Home sales fell 1.2%, lower than a 1.6% contraction estimated. In the meantime, the Advance Goods Trade Balance fell to an all-time-high deficit of $125.3 billion from a prior $106.35 billion deficit in February as imports soared.

Therefore, with Australian inflation showing elevating signs, money market futures odds of a 0.25-bps rate increase by the RBA at its May 3 meeting are at 94%, which would boost the prospects of the AUD. However, as the Federal Reserve prepares to lift the Federal Funds Rates to 1% in May, further downside pressure on the AUD/USD is expected at its May meeting.

AUD/USD Price Forecast: Technical outlook

The AUD/USD shifted downward biased since the beginning of the week. Following the 200-day moving average (DMA) break at 0.7295 on last week’s Friday, downward pressured the Aussie, which extended its losses throughout the week. However, Wednesday’s price action gave a respite to AUD bulls, forming a “quasi gravestone doji” at the end of a downtrend? It is about to be seen.

A continuation of the AUD/USD downtrend will find the next support zone to overcome around April’s 27 daily low at 0.7101. A break below would expose February’s 4 daily low at 0.7052, followed by the figure at 0.7100.

If AUD/USD bulls would like to shift the bias to neutral, they need to reclaim 0.7200.