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AUD/USD Rate Stages Another Attempt for 2022 Opening Range Breakout

AUD/USD Rate Stages Another Attempt for 2022 Opening Range Breakout

David Song, Strategist

Australian Dollar Talking Points

AUD/USD climbs to a fresh weekly high (0.7290) after showing a limited reaction to the Reserve Bank of Australia (RBA) rate decision, and the exchange rate may stage further attempts to test the January high (0.7314) as it carves a fresh series of higher highs and lows.

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AUD/USD Rate Stages Another Attempt for 2022 Opening Range Breakout

AUD/USD appears to be unfazed by the RBA’s dovish forward guidance as it clears the February high (0.7284), and it remains to be seen if the update to Australia’s Gross Domestic Product (GDP) report will derail the recent advance in the exchange rate amid expectations for a slowdown in economic activity.

Image of DailyFX Economic Calendar for Australia

Australia is projected to grow 3.7% after expanding 3.9% during the third quarter of 2021, and indications of a slowing economy may keep the RBA on a preset course as the central bank pledges to “not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range.”

As a result, the advance from the January low (0.6968) may turn out to be a correction in the broader trend with the Federal Reserve on track to normalize monetary policy ahead of its Australian counterpart, but recent price action raises the scope for another run at the January high (0.7314) as it clears the February range.

In turn, AUD/USD may continue to carve a series of higher highs and lows over the coming days if it shows a limited reaction to Australia’s GDP report, and a further appreciation in the exchange rate may fuel the recent flip in retail sentiment like the behavior seen in 2021.

Image of IG Client Sentiment for AUD/USD rate

The IG Client Sentiment report shows 37.90% of traders are currently net-long AUD/USD, with the ratio of traders short to long standing at 1.64 to 1.

The number of traders net-long is 5.10% lower than yesterday and 21.01% lower from last week, while the number of traders net-short is 16.71% higher than yesterday and 4.43% higher from last week. The decline in net-long position comes as AUD/USD trades to a fresh weekly high (0.7290), while the rise in net-short interest has fueled the recent flip in retail sentiment as 57.92% of traders were net-long the pair last week.

With that said, AUD/USD may stage further attempts to test the January high (0.7314) after showing a limited reaction to the RBA, but the recovery from the yearly low (0.6968) may turn out to be a correction in the broader trend if it stages another failed attempt to break out of the opening range for 2022.

AUD/USD Rate Daily Chart

Image of AUD/USD rate daily chart

Source: Trading View

  • Keep in mind, AUD/USD cleared the November 2020 low (0.6991) earlier this year after failing to hold above the 50-Day SMA (0.7176), but lack of momentum to test the 0.6940 (78.6% expansion) region has pushed the exchange rate back above the moving average as the Relative Strength Index (RSI) diverged with price.
  • AUD/USD appears to be on track to stage another test of the January high (0.7314) as it clears the February range, but the advance from the January low (0.6968) may turn out to be a correction in the broader trend if it fails to break out of the opening range for 2022.
  • At the same time, AUD/USD seems to be on course to test the 200-Day SMA (0.7326) as the indicator retains the negative slope carried over from the previous year, but the exchange rate has held below the moving average since July 2021.
  • In turn, lack of momentum to hold above the 0.7260 (38.2% expansion) region may push AUD/USD back towards the Fibonacci overlap around 0.7130 (61.8% retracement) to 0.7180 (61.8% retracement), with a break/close below the 0.7070 (61.8% expansion) to 0.7090 (78.6% retracement) area bringing the February low (0.7033) on the radar.

--- Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong

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

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