With Democrats targeting victory in both Houses, Australian Dollar recovers

• Improving market sentiment lifts the Australian Dollar back towards 0.6977 against the US Dollar.
• With a Senate majority secured, Democrats also lead in the House of Representatives.
• A 25 bps rate increase by the RBA on Tuesday took interest rates to 4.85%.

An improvement in investors’ risk appetite is supporting the Australian Dollar (AUD) against the US Dollar (USD) on Wednesday, lifting the pair towards 0.6977. The renewed buying follows a sharp sell-off over the previous two trading days.

A revival in investors’ appetite for risk appears to be taking shape in early European trading. S&P 500 futures have recouped half their earlier losses in a V-shaped rebound, although they remain 0.6% lower at around 7,530.

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

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

Much of the US Dollar’s earlier decline has also been reversed. At the time of writing, the US Dollar Index (DXY) stands near 101.48, down 0.4%, after bouncing sharply from an intraday low of 101.25. The index measures the Greenback against six major currencies.

The sharp rebounds evident in both S&P 500 futures and the US Dollar point to a “Sell the rumour Buy the News” phenomenon.

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 signalled a very high threshold for any further interest rate increase.

Can AUD/USD Overcome Its Near-Term Technical Resistance?

Trading at 0.6982 on the daily chart, AUD/USD remains below its 20-period Exponential Moving Average (EMA) of 0.7005, keeping the near-term outlook bearish. Failure to regain this short-term EMA points to continuing pressure on upward moves. Meanwhile, a Relative Strength Index (RSI) reading around 45 indicates consolidation rather than oversold conditions, suggesting scope for additional declines if sellers retain control.

For a recovery to gain traction, AUD/USD would first need to clear immediate resistance at the 20-period EMA near 0.7005. A sustained move above that level would be necessary to soften the bearish outlook and pave the way for a more constructive advance. Unless that barrier is overcome, 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.)