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US Dollar Outlook: AUD/USD Primed for Volatility with RBA on Tap

US Dollar Outlook: AUD/USD Primed for Volatility with RBA on Tap

Rich Dvorak, Analyst

US DOLLAR OUTLOOK: AUD/USD PRICE ACTION MIRED BY RBA DECISION DUE

  • US Dollar gained ground across the board of major currency pairs during Monday trade
  • The DXY Index jumped 0.5% on the session, extending its rebound to eight-week highs
  • AUD/USD price volatility likely to accelerate due to Reserve Bank of Australia event risk
  • Learn more about the basics of technical analysis or implied volatility trading strategies
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The US Dollar advanced broadly on Monday as bulls continue to drive the rebound. US Dollar strength was notable across EUR/USD and USD/CAD in particular during the session. The DXY Index now trades at its highest level in eight-weeks following the latest 0.5% gain. Not to mention, the ongoing rebound has pushed the broader US Dollar back above its 50-day simple moving average for the first time since early November.

DXY – US DOLLAR INDEX PRICE CHART: DAILY TIME FRAME (20 OCT 2020 TO 01 FEB 2021)

DXY Index Price Chart US Dollar Technical Forecast

Chart by @RichDvorakFX created using TradingView

This leaves the DXY Index flirting with technical resistance posed by the 91.10-price level, which is emphasized by 09 December close. The upper Bollinger Band also seems to be keeping advances relatively contained, but its expanding width is noteworthy and may facilitate more upside potential.

Follow-through higher could see the 100-day simple moving average come into focus. That said, the US Dollar could face headwinds stemming from a retracement lower in the VIX ‘fear-gauge.’ This is seeing that a falling VIX Index typically corresponds with a mechanical downshift in demand for safe-haven currencies.

USD PRICE OUTLOOK – US DOLLAR IMPLIED VOLATILITY TRADING RANGES (OVERNIGHT)

USD Price Chart Outlook US Dollar Implied Volatility Trading Ranges EURUSD AUDUSD

AUD/USD price action is anticipated to be the most active during Tuesday’s trading session. This is judging by AUD/USD overnight implied volatility of 14.3%, which is the highest reading across G10-FX. AUD/USD implied volatility is likely elevated owing to event risk on deck surrounding the Reserve Bank of Australia.

The February 2021 RBA rate decision is due for release Tuesday, 02 February at 03:30 GMT. AUD/USD could trade on its front foot in the wake of the RBA decision if the central bank leaves monetary policy unchanged as widely expected. This is considering interest rate futures traders have priced in a near 30% probability that the RBA cuts rates heading into the event.

Keep Reading – US Dollar Technical Forecast: DXY, EUR/USD, GBP/USD, AUD/USD

-- Written by Rich Dvorak, Analyst for DailyFX.com

Connect with @RichDvorakFX on Twitter for real-time market insight

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

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