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Australian Dollar Forecast: AUD/USD to Rise on Prevailing Sentiment?

Australian Dollar Forecast: AUD/USD to Rise on Prevailing Sentiment?

Thomas Westwater, Analyst

Australian Dollar, AUD/USD, Covid, Market Sentiment -Talking Points

  • Market sentiment likely to default to the prevailing trend to start a quiet week
  • China inflation data and New Yuan loans shift into focus for Asia-Pacific traders
  • AUD/USD looks to start the week on a bright note after rising above resistance

Monday’s Asia-Pacific Outlook

Asia-Pacific markets may see a calm start to the trading week after risk-sensitive currencies such as the Australian and New Zealand Dollars shifted higher late last week. The move stemmed from a US non-farm payrolls report where a big miss relative to the consensus forecast sank the US Dollar. In turn, AUD/USD and NZD/USD rose along with US equity markets.

The US NFP report enhanced the probability of an ultra-loose monetary policy landscape over the next couple of years, not just in the United States but globally. This is due to the spillover effects of US monetary conditions on the global financial system, because of the Fed’s position as a bellwether for the world’s major central banks. That is thanks to the US Dollar’s dominant role as the global medium of exchange. Interest rate forecasts for the Federal Reserve moved down, with the chance of a 25 basis point hike for the December Fed meeting falling to 10% from 15.4% last week, according to the CME FedWatch tool.

Meanwhile, India’s deadly Covid situation continues to grow grimmer by the day, and medical experts are concerned it will only grow worse. On Saturday, India reported a fresh record for daily virus deaths at 4,187, according to the Indian government’s Covid-19 Tracker. Despite the already high rate of deaths in the densely populated country, many global health experts believe India’s reporting likely falls short of the real rate of infection. Still, India’s benchmark stock index, the Nifty 50, has not seen a major selloff in response to the dire situation.

The economic calendar for today is rather sparse, which will likely leave the prevailing risk-on trend in play. Tuesday will bring potentially high-impact eventshowever, with China set to release inflation and New Yuan Loans data for April. According to the DailyFX Economic Calendar, the consensus forecast for Chinese inflation on a YoY basis is 1%, up from the prior read of 0.4%. While unlikely to affect price action, today’s docket features Australian Retail Sales for March as well as Japanese household spending data.

AUD/USD Technical Forecast

The Australian Dollar’s 1.71 % gain against its US counterpart last week marked the best performance seen since November 2020. AUD/USD may start the week with supportive conditions, but a short-term pullback to the 0.78 handle, a prior resistance point, may be in the cards as well. A break lower would put the currency pair up against its 9-day Exponential Moving Average (EMA).

An extension higher, however, would likely have traders begin shifting attention to the multi-year swing high tagged in February, where potentially significant resistance lurks nearby the psychologically imposing 0.80 handle. MACD appears to be strengthening, and the Relative Strength Index (RSI) is hovering just above 60.

AUD/USD Daily Chart

AUDUSD

Chart created with TradingView

AUD/USD TRADING RESOURCES

--- Written by Thomas Westwater, Analyst for DailyFX.com

To contact Thomas, use the comments section below or @FxWestwateron Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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