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Australian Dollar Outlook: AUD/USD Price Trend Faces Pushback

Australian Dollar Outlook: AUD/USD Price Trend Faces Pushback

2020-07-09 18:29:00
Rich Dvorak, Analyst
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AUD/USD PRICE OUTLOOK: AUSTRALIAN DOLLAR BULLISH TREND CLASHES WITH TECHNICAL RESISTANCE, CHINA TENSION EYED

  • AUD/USD price action dropped sharply after another rejection at the 0.7000-handle
  • Australian Dollar bulls look towards trend support to sustain the Aussie rally
  • US Dollar could strengthen if sentiment deteriorates amid escalating China tension

The pro-risk Australian Dollar is trading on its back foot with spot AUD/USD down by about 0.31% so far today. AUD/USD price action was in the green early on Thursday’s session, but after failing to advance past the psychologically-significant 0.7000-mark yet again, the Aussie took a quick 50-pip spill to intraday lows.

AUD/USD PRICE CHART: 15-MINUTE TIME FRAME (09 JULY 2020 INTRADAY)

AUD USD Price Chart Australian Dollar Technical Outlook AUDUSD

Australian Dollar downside also appears fueled in part by headlines that point to growing potential for material escalation in US-China tension. This follows reports detailing that the United States government is finalizing regulations against top Chinese tech companies – such as Huawei, ZTE, Hikvision and others – that would ban the purchase of goods and services due to national security risks.

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This bearish fundamental development, in combination with barriers of technical resistance around the 0.7000-handle, have potential to pressure AUD/USD price action lower. Also, as the strong advance by spot AUD/USD price action starts to stall, it is possible that a Bollinger Band squeeze lurks on the horizon. This could facilitate additional Australian Dollar weakness.

AUD/USD PRICE CHART: DAILY TIME FRAME (09 DECEMBER 2019 TO 09 JULY 2020)

AUDUSD Australian Dollar Price Chart AUD to USD

Nevertheless, AUD/USD still enjoys a healthy bullish trend highlighted by a series of higher lows notched over the last three months. In addition to current intraday lows near the 0.6950-price, this positively-sloped trendline might provide buoyancy to the Australian Dollar. On the other hand, a breakdown below these key technical levels could suggest Aussie bears are taking over the drivers seat.

AUD/USD MIXED
Data provided by
of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily -8% 1% -3%
Weekly 9% 4% 6%
What does it mean for price action?
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Also noteworthy, an interesting anecdote extracted from the latest IG Client Sentiment Report suggests the pro-risk Australian Dollar has potential to continue melting higher. A sizable increase in the number of traders net-short since late June has been exacerbated by net-long traders unwinding their positions.

AUSTRALIAN DOLLAR TRADER POSITIONING – IG CLIENT SENTIMENT

AUD Price Chart Australian Dollar FX Trader Positioning

On balance, this has caused a decline in the percentage of traders net-long AUD/USD to 31.3% from about 40% two weeks ago. Seeing that we broadly hold a contrarian view on retail FX trader positioning, and the fact that IG clients are net-short AUD/USD, the Aussie may keep rising against its US Dollar peer.

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That said, amid escalating Sino-American tension, the possibility of another US-China trade war outbreak has gained traction, and leaves the phase one trade deal in jeopardy. This fundamental theme remains a major threat to risk appetite and the Australian Dollar, which could hinder potential advances by spot AUD/USD price action.

Keep Reading – USD Price Outlook: US Dollar Tests Support as EUR, GBP, CAD Spike

-- 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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