AUD/USD Trading Strategy: Pending Short
- A relatively hawkish Fed compared to the RBA offers bearish AUD/USD fundamentals
- However, Australian Dollar prices are not at an optimal level for a short setup for now
- A temporary rebound in AUD/USD on local jobs data may push prices to a better level
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AUD/USD Fundamental Bearish Argument
From a fundamental view, it is compelling to argue that we may expect Australian Dollar weakness against its US counterpart in the near-term. At its most recent monetary policy announcement in August, the Fed still upheld its case for two more rate hikes this year. However, those bets are not quite yet fully priced in when looking at Fed Funds Futures. USD could gain as those expectations align with the central bank’s outlook.
Meanwhile, at its most recent policy announcement, the Reserve Bank of Australia maintained the status quo that rates are where they need to be for sustainable growth and achieving their inflation target over time. Overnight index swaps are only pricing in a 51.3% chance that the central bank will raise rates once by September 2019. As such, the Fed is poised to keep overtaking the RBA ahead.
While it may be tempting to enter short AUD/USD using this argument, there is an economic event that may offer temporary gains for the Aussie Dollar. That is Thursday’s Australian jobs report. Local economic news flow has been tending to outperform lately and this may open the door for an upside surprise. However, a lasting response in AUD/USD could be lacking since the data may not dramatically alter RBA policy views.
Join our Australian Jobs Report Webinar for live coverage of the event and its impact on AUD/USD and other Aussie crosses!
AUD/USD Technical Analysis
With that in mind, it would be best to stand aside at the moment to let this event pass. Furthermore, the technical side of things show that entering short at the moment is not favorable from a risk-reward perspective. AUD/USD has finally broken out of consolidation, and it was to the downside. Since then, the pair has been making remarkable progress lower.
An exit point for an AUD/USD short could be strategically placed around a daily close above the May 2017 lows at 0.73288. This could open the door for the pair to get stuck in its range from mid-June to early-August. Meanwhile, the December/May 2016 lows beginning at 0.71623 could be used as a target for this setup.
Given that prices are now more than halfway between the potential exit and target, we would need to see a pullback in Aussie Dollar to make this setup more favorable. We may even get this rebound if the Australian jobs data beats expectations. As such, we shall wait for this event risk to pass and reevaluate the setup after getting the reaction in AUD/USD on the data.
Chart created in TradingView
FX Trading Resources:
- See how AUD is viewed by the trading community at the DailyFX Sentiment Page
- Having trouble with your strategy? Here’s the #1 mistake that traders make
- Just getting started? See our beginners’ guide for FX traders
--- Written by Daniel Dubrovsky, Junior Currency Analyst for DailyFX.com
To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter
