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Australian Dollar Forecast: Remaining Bearish on AUD Rallies

Australian Dollar Forecast: Remaining Bearish on AUD Rallies

Justin McQueen, Strategist

AUD/USD Analysis & News

  • Risk Trends Dictating Direction for FX
  • Bearish on AUD Rallies

Risk Trends Dictating Direction for FX

A relatively tame session thus far across the FX space, which continues to lack notable direction. For currency markets, given that there is little to get excited about on the economic calendar, the focus will remain on risk sentiment for guidance. The Japanese Yen is on the back foot as we close out the week, with equities and yields finding a lift, although, 110.00 caps upside for now in USD/JPY. Looking at momentum across G10 (Figure 1), the Pound has outperformed in recent sessions, however, trends are still some way from being considered stretched (a reading >2), meanwhile, momentum across other major currencies are neutral.

FX Momentum 20D Z-score

Australian Dollar Forecast: Remaining Bearish on AUD Rallies

Source: Refinitiv, DailyFX

Bearish on AUD Rallies

AUD/USD: Modest recovery in the Aussie, however, 0.7400 remains a stumbling block for further upside. Eyes will be on the weekly close whereby a close above the figure puts 0.7450 in focus, which coincides with the descending trendline stemming from the May high and the 38.2% fib of this year's range. This is an area that I suspect the pair will struggle to break and thus stick to a bias of selling on rallies in AUD/USD. Risk sentiment will also be important for the pair and given that we are heading towards a typically soft window for equity markets, not just seasonally but also the recent trend of equities weakening into the weekly expiry option on the 3rd Friday of the month. A factor that does not bode well for AUD/USD.

IG Client Sentiment Signals AUD/USD May Soon Reverse Lower

Retail trader data shows 49.48% of traders are net-long with the ratio of traders short to long at 1.02 to 1. The number of traders net-long is 9.00% higher than yesterday and 7.44% higher from last week, while the number of traders net-short is 9.40% lower than yesterday and 6.78% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests AUD/USD prices may continue to rise.

Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current AUD/USD price trend may soon reverse lower despite the fact traders remain net-short.

AUD/USD Chart: Daily Time Frame

Australian Dollar Forecast: Remaining Bearish on AUD Rallies

Source: Refinitiv

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