Federal Reserve Chair Janet Yellen concluded her testimony in front of the US Congress on Thursday, having provided two days of testimony that leaned overall towards the dovish side. Fed-watchers were left with the impression that the central bank would not be as hawkish as previously expected and that future interest rate hikes will likely be more gradual than anticipated. Prior to this testimony, doubts about a hawkish path for the Fed had already weighed on the US dollar, extending the downtrend for the greenback that has been in place since the beginning of the year.
This sustained pressure on the US dollar has helped lead to a sharp boost for the AUD/USD currency pair, which approached major resistance around the 0.7750 level on Thursday. Last week, the Reserve Bank of Australia left its cash rate unchanged at 1.50%, as expected. While AUD/USD pulled back after that announcement, the currency pair rebounded strongly this week as the Fed-driven US dollar has weakened considerably against the Australian dollar.
With the exchange rate having reached up to approach the noted 0.7750 resistance level, AUD/USD has arrived at a critical juncture. This 0.7750 price region has been tested and respected on multiple occasions within the past year. Because of the strength of this resistance, any major move that succeeds in breaking above this level, especially as a result of continued US dollar weakness, would likely carry the momentum to follow-through significantly further to the upside. The next major target in the event of such a breakout is at the key 0.7900 resistance level. In the opposite event that 0.7750 is respected once again with another reversal to the downside, the key short-term bearish target is at the major 0.7500 support level.
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