AUD/USD grinds higher around 0.7180s amid risk-aversion conditions

• The AUD/USD extends its gains in the week, so far up 0.78%.
• Increasing tensions in the Russia/Ukraine conflict could not stop the rise of the risk-sensitive AUD.
• Fed’s Kashkari and Harker favor 25 bps “gradual” increases on fear of causing a recession.
• AUD/USD in the short-term is upward biased, but it would face strong resistance in the 0.7210-43 area.

During the North American session, the AUD/USD edges higher though barely short of weekly tops amid a risk-off market mood. At the time of writing, the AUD/USD is trading at 0.7186.

Failure of de-escalation in the Russia/Ukraine conflict dampened the market mood. Earlier in the European session, European bourses were trading in the green following Tuesday’s news that Russian troops were moving back, as reported by Russian authorities. However, the lack of confirmation by Western officials, led by US Secretary of State Blinken, who on Wednesday said that they continue to see critical Russian units moving towards the border and not away, shifted market participants’ sentiment.

Ukraine President Zelenskiy confirmed the headline above around 17:25 GMT, saying he doesn’t see Russian troops pull back.

Fed’s Kashkary and Harker favor “gradual” interest rates hikes

Around 16:00 GMT, Minnesota Fed’s President Neil Kaskari said that the US central bank could soften demand by hiking rates, but that won’t address the supply-side issues. He favors gradual rate hikes, and he sees inflation at 3% by the end of the year, in line with most forecasts. Kashkari sees a risk of recession if the Fed hikes too aggressive.

Later on the day, Philadelphia Fed President Patrick Harker said he supported a 25 bps increase to the Federal Funds Rate (FFR) in the March meeting. He said that “we need to do what we need to do to curb inflation but not overreact and possibly dampen an economy that is, in some ways, doing very well.”

Before Wall Street opened, the US economic docket featured Retail Sales for January. The headline came at 3.8% m/m higher than the 2% estimations, while the so-called core sales, which exclude gasoline and cars, rose by 3.3% m/m, crushing the 0.8% foreseen. Furthermore, US Industrial Production rose 1.4% m/m, better than the 0.4%, and Capacity Utilization jumped 77.6% from 76.60%, the highest jump in December 2021.

At 19:00 GMT, AUD/USD traders turn their attention to the FOMC monetary policy minutes, followed at 23:30 GMT, by the release of the Australian Employment report, which could shed some clues about what the RBA is going to do next.

AUD/USD Price Forecast: Technical outlook

On Wednesday, the AUD/USD has risen steadily since the beginning of the Asian session. Geopolitical headlines caused a minor dip, though at press time is trading at new daily highs, near the 0.7200 figure.

The AUD/USD is neutral biased but upwards in the short-term. The AUD/USD first resistance would be 0.7200. Breach of the latter would expose a three-month-old downslope trendline around 0.7210, followed by the 100-day moving average (DMA) at 0.7243.