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Australian Dollar Forecast: Aggressive AUD/USD Rebound Facing Topside Hurdle

Australian Dollar Forecast: Aggressive AUD/USD Rebound Facing Topside Hurdle

Justin McQueen, Strategist

AUD/USD Analysis and News

  • Aggressive Rebound in AUD Capped
  • Risk Appetite to Dictate Ahead of US CPI

Earlier in the week, I noted the extreme oversold conditions in the Australian Dollar as the daily RSI crossed 20. Below (Figure 1.) shows the performance in the AUD/USD over the following three sessions. In turn, the currency has been among the main beneficiaries amid the rebound in risk appetite. What’s more, with net shorts in the Aussie hovering around a record peak (Figure 2.) position squaring has also played a big part in the recovery, leading to outperformance relative to other cyclical currencies.

However, following a sizeable 2.5% increase in the AUD, I suspect the currency will start to consolidate with topside hurdles from 0.7190-0.7210. To add to this, it is under a week until the FOMC rate decision, adjustments in positioning ahead of the event may see the USD retain a bid

.

Figure 1. Position Squaring Sees AUD/USD Outperform

Australian Dollar Forecast: Aggressive AUD/USD Rebound Facing Topside HurdleAustralian Dollar Forecast: Aggressive AUD/USD Rebound Facing Topside Hurdle

Source: Refinitiv, DailyFX (X+1 = 1-day after AUD/USD RSI crosses 20)

Relative Strength Index Guide

Figure 2. AUD Net Shorts Hovering Near Record Peak

Australian Dollar Forecast: Aggressive AUD/USD Rebound Facing Topside Hurdle

Source: Refinitiv

Taking a look at the chart, with risks of a modest pullback from the sizeable appreciation, short term support is situated at 0.7122, marking the 23.6% fib of the October to December drop. That said, with little on the economic calendar ahead of tomorrow’s CPI report, risk appetite is likely to dictate the latest state of play.

Australian Dollar Forecast: Aggressive AUD/USD Rebound Facing Topside Hurdle

Source: Refinitiv

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

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