Australian Dollar Forecast: Is AUD/USD in Danger as Risk Appetite Wanes?

AUD/USD Price Outlook:

• AUD/USD has surpassed its pre-covid levels but recent USD strength could threaten the rally
• Further still, the growth-linked currency could suffer if risk appetite tapers off
• Nevertheless, the summer doldrums could help keep losses contained as price swings struggle for momentum

Australian Dollar Forecast: Is AUD/USD in Danger as Risk Appetite Wanes?

The Australian Dollar has made some remarkable strides in the wake of the coronavirus crash and has even extended beyond pre-covid levels in some instances. AUD/USD is one such example which is well above its February range, charging 25% higher from its March 19 low. Now, AUD/USD gains have slowed as risk appetite appears to taper off in the latter half of the week.

That said, losses have been modest and the summer conditions gripping the market could work to crimp further selling pressure. While the Australian Dollar is still beholden to broader risk trends, it seems the catalyst necessary for a substantial pullback is absent and, as a result, recent losses were quite minimal. Lacking the momentum for a bearish follow-through, AUD/USD may gradually continue higher in the weeks ahead as the broader technical pattern remains intact - barring a significant shift in the fundamental landscape.

AUD/USD Price Chart: 4 – Hour Time Frame (April 2020 – August 2020)

Technically speaking, prior price action may suggest possible support around the 0.7110 level, riding along the series of swing-lows from mid-July. A break beneath the ascending trendline could open the door to further losses, possibly down to the 0.7000 mark where secondary support may reside.

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Conversely, a recovery rally – if mounted – may have to negotiate resistance derived from the various price peaks over the last month and a half. While each may provide price influence in the shorter timeframes, I would argue the trendline drawn off the tops of each may be the most important level going forward. As it stands, this would suggest possible resistance near 0.7325. In the meantime, follow @PeterHanksFX on Twitter for updates and analysis.

--Written by Peter Hanks, Strategist for DailyFX.com

Contact and follow Peter on Twitter @PeterHanksFX