AUD/USD surpasses 0.7000 as USD Index refreshes seven-month low, China’s GDP eyed

• AUD/USD has overstepped the psychological resistance of 0.7000 amid an upbeat market mood.
• The Fed is expected to hike interest rates further by 25 bps as inflation has shown a meaningful slowdown.
• The Australian Dollar will witness action after the release of China’s GDP data.

The AUD/USD pair has surpassed the psychological resistance of 0.7000 for the first time in the past five months in the Asian session. The Aussie asset has made a high of 0.7015 after picking up demand as the risk-appetite theme has been strengthened further.

The continuation of the upside in the S&P500 futures followed by a five-day winning spell is portraying a cheerful market mood. The risk-on impulse has triggered volatility for the US Dollar Index (DXY). The USD Index has refreshed its seven-month low at 101.44 as investors are dumping safe-haven assets amid rising expectations of a smaller interest rate hike by the Federal Reserve (Fed).

Investors should be aware of the fact that the United States markets are closed on Monday n account of Martin Luther King’s Birthday.

Advancing odds for a 25 basis point (bps) interest rate hike by the Fed in its February monetary policy meeting are responsible for an intense sell-off in the US Dollar Index. As per the CME FedWatch tool, the chances of pushing interest rates to 4.50-4.75% by hiking interest rates with a 25 bps rate hike have scaled above 94%. Odds for a smaller interest rate hike have been bolstered after Fed policymakers gained the confidence of achieving price stability post a spree of decline in the inflation rates.

On the Aussie front, the Australian Dollar will witness action after the release of China’s Gross Domestic Product (GDP) data, which is scheduled for Tuesday. As per the projections, the fourth quarter GDP may drop to 1.8% vs. the former release of 3.9% on an annual basis. On a quarterly basis, the economic data is expected to contract by 0.8% against the 3.9% expansion released earlier. It is worth noting that Australia is a leading trading partner of China and upbeat Chinese GDP might support the Australian Dollar.