AUD/USD rallies to 0.6400 as the US dollar dives

• The Australian dollar shrugs off weakness and jumps to 0.6400.
• Hopes of Fed easing have sent the US dollar tumbling.
• AUD/USD is now testing resistance at 0.6410.

The Australian dollar has shrugged off previous weakness and surged nearly 100 pips in the early US Trading session, reaching levels right above 0.6400. The pair appreciates 1.3% on the day, to erase Monday’s reversal amid a broad-based US dollar weakness.

The US dollar plunges on Fed easing hopes

The downbeat US housing prices and consumer confidence, contracting beyond expectations, and the disappointing S&P PMIs seen on Monday have increased concerns about the negative impact on the economy of the Federal Reserves' sharp tightening path,  boosting hopes that the bank might ease its normalization cycle over the coming months. 

Stock markets have extended gains after a mixed US session opening and the US Treasury bonds dropped sharply, with the 10-year gilt falling from 4.25% to 4.06 so far. The brighter market sentiment has hurt the USD, which lost ground against its main peers.

The Australian dollar, which had retreated to the 0.6300 area after the Labor Cabinet released its first budget, bounced up sharply during the early US session. Risk appetite has pushed the aussie to test 0.6400 resistance area, which, so far remains unbroken, with the pair trading at 0.6385.

AUD/USD testing resistance at 0.6410

The aussie lies now right below 0.6410 (October, 24 high) which could hold for some time, as the pair seems a bit exhausted following a nearly 100-pip rally. Above here, the next potential targets would be 0.6430 (October 7 high) and the 200-period SMA in the 4-hour chart, now at the 0.6500 area.

On the downside, a negative reaction below 0.6300 might give air to bears and drive the pair towards 0.6275 (Oct 24 low) on the way to 0.6215 (Oct 21 low).

Technical levels to watch