AUD/USD testing daily highs above 0.77

After dropping to 0.7660 area, the AUD/USD pair once again rose above 0.77 to refresh its daliy high around 0.7710. Although a follow-through seems to be lacking strength at the moment, the pair is gaining 0.33% on the day.

The US Dollar Index, following a slide to a new two-week low at 99.97, was able to correct its losses to 100.20 during the early American session and is not allowing the AUD/USD to extend its rise. However, the U.S. 10-year bond yield is approaching the critical 2.5% level, which provided a strong support yesterday, suggesting a potential sell-off on the USD.

The RBA is at a crossroads where it must choose between staying on hold and tightening. As the most recent data for February showed, the labor market is poor condition while the household income growth is still weak, suggesting that the loose monetary policy is failing. On the other hand, the speculation of a bubble in the housing sector coupled with continuously rising household debt put the RBA in a tight spot.

Goldman Sachs predicts a 25bps rate hike by RBA in Q4 2017

Technical outlook

Immediate resistance is located a 0.7720 (Mar. 15 high), followed by 0.7740 (Feb. 23 high) and 0.7780 (Nov. 8 high). On the downside, a breach of 0.7620 (20-DMA/50_DMA) could open the door for a drop to 0.7550 (Mar. 15 low) and finally 0.7500 (Psychological level/100-DMA).