The AUD/USD pair has been on the rise, scaling higher for the second straight day and reaching a nearly two-week high. The move comes as the US dollar weakens on the back of expectations for a less hawkish Fed. However, despite this bullish sentiment, there are concerns that a full-blown global banking crisis and the Reserve Bank of Australia’s (RBA) dovish shift could cap the pair’s upside potential.
Why the AUD/USD is climbing?
The AUD/USD pair has been climbing due to a weaker USD, which has been weighed down by expectations for a less hawkish Fed. The US central bank has been signaling that it will start tapering its massive bond-buying program soon, but it has also emphasized that it will take a gradual approach and that interest rates will remain low for the foreseeable future. This dovish stance has led to a decline in US Treasury yields, which has put pressure on the USD.
Why there are concerns about a global banking crisis?
Despite the bullish sentiment towards the AUD/USD pair, there are growing concerns about a global banking crisis. The recent collapse of Chinese real estate giant Evergrande has raised fears of a contagion effect that could spread throughout the global financial system. Many experts believe that this could trigger a broader market sell-off and lead to a tightening of credit conditions, which would be negative for riskier assets like the AUD.
What is the RBA’s dovish shift?
Another factor that could limit the upside potential of the AUD/USD pair is the RBA’s recent dovish shift. The central bank surprised markets earlier this month by delaying its planned tapering of its bond-buying program. This move was seen as a signal that the RBA is adopting a more cautious approach to monetary policy, which could limit the upside potential of the AUD.
In conclusion, the AUD/USD pair has been climbing due to a weaker USD, which has been weighed down by expectations for a less hawkish Fed. However, there are concerns about a global banking crisis and the RBA’s dovish shift, which could limit the pair’s upside potential. As always, traders should be cautious and closely monitor market developments to make informed trading decisions.