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Debt Ceiling Deal Driving Dollar Higher

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  • Optimism regarding the US debt ceiling agreement will support the dollar.
  • On Tuesday, more information on the tentative US debt ceiling agreement will be provided.
  • Investors are expecting data from the US on consumer confidence.

Today’s AUD/USD outlook is bearish as the dollar rises amid optimism after the US debt ceiling deal. On Tuesday, as the US and UK markets reopened after their one-day holidays, global trading volumes returned to normal. 

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Consequently, there was optimism regarding the US debt ceiling agreement, which is expected to support risk assets, increase bond yields, and strengthen the dollar.

Elsewhere, the dollar remained strong on Monday, maintaining its highest level in over two months against major currencies. Analysts believe the dollar’s recent bullish trend will continue if US implied rates and bond yields rise on Tuesday. 

This is particularly true against Asian currencies, as many regional central banks have indicated the end of their hiking cycles. On Tuesday, more information and clarity on the tentative agreement to suspend the $31.4 trillion federal debt ceiling should be provided.

Although the agreement still requires approval in both Houses of Congress, leaders from both sides are confident it will pass. This approval will likely bolster the markets.

On Monday, the Australian dollar reversed from six-month lows because of positive global sentiment. Additionally, Ray Attrill, head of FX strategy at National Australia Bank, stated that there had been a favorable response to the debt deal news, indicating a positive attitude towards risk.

While the debt deal still needs to be finalized, there is a general belief in the market that it will be achieved before the new X-date. 

AUD/USD key events today

Investors are expecting data from the US on consumer confidence. The CB consumer confidence report for May will show how consumers in the US feel about the state of the economy.

AUD/USD technical outlook: Bears set to break 0.6500

AUD/USD technical outlook
AUD/USD 4-hour chart

AUD/USD is on a downtrend in the 4-hour chart, and the price has just retested the 30-SMA resistance. On previous occasions, the price has retested the SMA as a strong resistance level, indicating a solid downtrend. 

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Furthermore, the RSI has stayed below the 50-level since the downtrend began. The downtrend paused at the 0.6500 key support level before retesting the SMA. However, bears look poised to retest 0.6500 and possibly make lower lows.

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