Australian Dollar Forecast: AUD/USD Probes Support, Can it Rally?
Australian Dollar Outlook:
- Despite encouraging economic data and receding rate cut odds, AUD/USD slipped during January
- Consequently, the pair has fallen to support offered by the descending band originating from December 2018
- Wednesday’s FOMC rate decision could provide clarity on a major theme, allowing the pair to look to other concerns
Australian Dollar Forecast: AUD/USD Probes Support, can it Rally?
AUD/USD waded into support on Wednesday following a Federal Open Market Committee rate decision. Strong employment data, robust inflation readings and receding rate cut odds have worked to buoy AUD to some degree, but US Dollar strength has overwhelmed throughout January. Given the dovish-lean from the Federal Reserve on Wednesday, the Australian Dollar could employ strong domestic data to recapture lost ground – if risk trends permit.
Coronavirus fears and quarterly results from some of the world’s largest tech companies have the potential to erode risk appetite in the days ahead, a theme that has helped to undermine AUD/USD repeatedly in January. Further still, US equity prices retreated into the close on Wednesday, threatening the prospect of a continuation lower as the week progresses. Nevertheless, the support near which AUD/USD currently resides has shown its ability to influence price in the past.
AUD/USD Price Chart: Daily Time Frame (December 2018 – January 2020)
Originating from December 2018, the descending band aligns with various swing highs over the last fourteen months. After breaking above with confidence in December 2019, AUD/USD has yet to revisit the level – until this week. While the initial break out suggested a possible shift in the pair’s longer-term trend, a break back beneath the level could see a return to the gradual downtrend and open the door to further losses.
With that in mind, subsequent support around 0.67 may provide a second opportunity for AUD/USD to rebound if the band fails to buoy price. However, given the positioning of retail traders, the secondary level may be required in the days to come as we typically view the data as a contrarian indicator. In the meantime, follow @PeterHanksFX on Twitter for updates and analysis.
--Written by Peter Hanks, Junior Analyst for DailyFX.com
Contact and follow Peter on Twitter @PeterHanksFX
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.