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AUD/USD Forecast: Aussie Dollar Indecisive as Rectangle Pattern Forms

AUD/USD Forecast: Aussie Dollar Indecisive as Rectangle Pattern Forms

Warren Venketas, Analyst

AUSTRALIAN DOLLAR ANALYSIS

AUD/USD FUNDAMENTAL BACKDROP

Australians along with their currency are feeling the pinch after the recent spike in COVID-19 cases (see chart below). The implementation of lockdowns have hampered AUD gains while commodity linked prices have slumped. Iron ore- the countries biggest export has fallen this exacerbating the already unfavorable situation. Falling commodity prices were given further impetus by the similar delta variant spread in China who is a major importer of Australian commodities. Consequent data such as GDP and retail sales will likely be negatively impacted which would put addition downward pressure on the pair.

NEW COVID-19 CASES: CHINA AND AUSTRALIA

new covid-19 cases australia and china

Chart prepared by Warren Venketas, Refinitiv

This week U.S. CPI data printed positively for Aussie bulls which has kept the pair fluctuating within a sideways range. As we move towards the Jackson Hole symposium in late August, market participants will keep a close eye on QE taper talk which could save the fading AUD should a hawkish tilt arise.

Other key economic data such as CPI (yellow) and unemployment (red) statistics have reacted predictably to the accommodative environment which is a source of support for the currency (see chart below). 10-year benchmark government bond yields (grey) have pushed off August lows and the largely positive historic correlation between yields and the AUD/USD pair may give bulls hope should this trend continue.

AUSTRALIAN CPI, UNEMPLOYMENT, 10Y BENCHMARK GOVERNMENT BOND YIELD

australian CPI, unemployment and bond yields

Chart prepared by Warren Venketas, Refinitiv

AUD/USD TECHNICAL ANALYSIS

AUD/USD DAILY CHART:

daily AUD/USD chart

Chart prepared by Warren Venketas, IG

The daily AUD/USD chart above reflects a consolidatory period since mid-July. Prior to this, it looked as if a rising wedge could have been unfolding but has since played out. Current price action outlines a rectangle pattern that may be preparing traders for a breakout. A confirmation close above or below the respective rectangle resistance/support levels could give a direction to this potential breakout.

The Relative Strength Index (RSI) is slowly moving out of oversold territory and suggesting slowing bearish momentum although spot prices are moving sideways.

The 20-day EMA (purple) is holding steady as a source of short-term resistance with a break above likely to support bulls in an attempt to push toward 0.7450.

Key resistance levels:

  • 0.7500
  • 0.7450 – coincides with 50-day EMA
  • 20-day EMA

Key support levels:

  • 0.7289
  • 0.7250
  • 0.7183

IG CLIENT SENTIMENT DATA POINTS TO SHORT-TERM AUSSIE WEAKNESS

AUD/USD Mixed
Data provided by
of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily 3% 1% 2%
Weekly -5% -3% -4%
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IGCS shows retail traders are net long on AUD/USD, with 60% of traders currently holding long positions (as of this writing). At DailyFX we typically take a contrarian view to crowd sentiment, and the fact traders are net-long is suggestive of a bearish bias.

--- Written by Warren Venketas for DailyFX.com

Contact and follow Warren on Twitter: @WVenketas

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

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