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Australian Dollar Forecast: AUD/USD Reversal Levels, AUD/JPY at the Extremes

Australian Dollar Forecast: AUD/USD Reversal Levels, AUD/JPY at the Extremes

Justin McQueen, Strategist

AUD/USD, AUD/JPY Analysis & News

AUD/USD | Key Hurdles for Extended Gains

Earlier in the month, I highlighted the potential for a breakout in the Australian Dollar on the topside, thanks to encouraging seasonality for risk appetite, alongside Australia’s improved terms of trade at a time where markets were excessively short the AUD. Now that the Aussie has reclaimed the 0.7500 handle, the concern lies with whether there is much more fuel in the tank for an extended push higher in the short run or is it time we start to see some profit-taking.

Keep in mind, that the near 5% rise from circa 0.7220 to north of 0.7500 has seen very little in the way of setbacks to even other any chance for dip-buying. Looking at copper, the price has failed continue higher, falling over 4% from the October peak. Tonight, RBA Governor Lowe is scheduled to speak (20:00BST) and given the sizeable repricing in front-end rates with money markets signalling near 50bps of tightening by the end of next year, despite the RBA remaining adamant that they will not raise rates I suspect there will be some pushback by the Governor.

On the technical front, there are key hurdles that can challenge further upside in the short run. The 55WMA at 0.7515 and the 200DMA above at 0.7563, which may offer an area for a pullback. Should the pair close above 0.7615-20 however, this would be a level to reassess the view of a pullback.

AUD/USD Chart: Daily Time Frame

Australian Dollar Forecast: AUD/USD Reversal Levels, AUD/JPY at the Extremes

Source: Refinitiv

AUD/JPY | At the Extremes

Since the beginning of the month, it has been a one-way trade with Yen crosses, which are trading at elevated levels across the board. Yesterday, the daily RSI in AUD/JPY crossed above 81 for only the fifth time since the beginning of 2010, which in turn, highlights just how extreme the move has been in the cross.

Admittedly, the sample size is small (only 5th time), it has, however, typically been a bearish signal for AUD/JPY. That being said, with Bitcoin and US equities around the ATHs and while yields remain elevated, there has been little motivation for a dip in Yen-crosses and thus I will be keeping a close eye for a turn in those assets to look for a dip.

Australian Dollar Forecast: AUD/USD Reversal Levels, AUD/JPY at the ExtremesAustralian Dollar Forecast: AUD/USD Reversal Levels, AUD/JPY at the Extremes

Source: Refinitiv, DailyFX (X+1 = 1-day after AUD/JPY RSI crosses 81)

AUD/JPY Daily RSI

Australian Dollar Forecast: AUD/USD Reversal Levels, AUD/JPY at the Extremes

Source: Refinitiv

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

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