Australian Dollar recovers as Democrats set sights on winning both Houses

• The Australian Dollar recovers towards 0.6977 against the US Dollar as market confidence strengthens.
• A Senate majority goes to the Democrats, who also lead in the House of Representatives.
• A 25 bps increase on Tuesday took the RBA’s interest rate to 4.85%.

A recovery towards 0.6977 marks Wednesday’s trading in the Australian Dollar (AUD) against the US Dollar (USD), following a steep sell-off over the previous two sessions. Renewed investor appetite for risk is supporting demand for the Australian currency.

Despite remaining 0.6% lower at around 7,530, S&P 500 futures have recouped half their earlier losses in a V-shaped rebound during early European trading. The recovery appears to signal a return of investors’ appetite for risk.

With the Australian currency particularly sensitive to market sentiment, the more favourable risk backdrop has enhanced its appeal.

Even with the Democrats securing a Senate majority and expected to win the House of Representatives, S&P 500 futures have staged a strong rebound. BBC News reports that the Democrats are ahead in the House vote count with 201 seats, against the 218 required for a majority.

Much of the US Dollar’s initial decline has also been reversed. At the time of writing, the US Dollar Index (DXY), which measures the Greenback against six major currencies, is down 0.4% at around 101.48, having recovered sharply from an intraday low of 101.25.

The pronounced recoveries in both S&P 500 futures and the US Dollar point to a “Sell the rumour Buy the News” response.

In Australia, Tuesday’s widely expected decision by the Reserve Bank of Australia (RBA) lifted the Official Cash Rate (OCR) by 25 basis points (bps) to 4.85%. The central bank also indicated that the threshold for a further rate rise is very high.

AUD/USD Remains Under Near-Term Technical Pressure

Trading at 0.6982 on the daily chart, AUD/USD retains a bearish short-term bias below its 20-period Exponential Moving Average (EMA) of 0.7005. Failure to regain this short-term average points to continuing resistance to gains. Meanwhile, a Relative Strength Index (RSI) reading of around 45 indicates consolidation rather than oversold conditions, allowing scope for further declines should sellers retain control.

Any recovery first faces resistance at the 20-period EMA, around 0.7005. Only a sustained move above that barrier would ease the prevailing bearish bias and pave the way for a more constructive advance. Until then, rallies remain exposed to fresh selling in the coming sessions.

(The technical analysis of this story was written with the help of an AI tool. Know more.)