AUSTRALIAN DOLLAR OUTLOOK:
- AUD/USD has rallied more than 2.7% in the last couple of days
- Price is approaching trendline resistance near 0.7420, an area where sellers could regain control of the market and spark a bearish reversal
- From a fundamental standpoint, rising commodity prices, the strength of the Australian labor market and promises from China that it will put in place measures to support its economy can be seen as bullish catalysts for the Aussie
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In late January, AUD/USD fell to a multi-year low near 0.6970 as the Omicron wave wreaked havoc around the world, creating uncertainties and clouding the economic outlook. The pair, however, has rebounded substantially from those levels, helped by improving conditions around the healthcare crisis and rising raw material costs, fueled by geopolitical tensions in Eastern Europe.
Australia exports large quantities of iron ore, coal briquettes, petroleum gas, gold and aluminum oxide, and prices for these commodities have soared since Russia invaded Ukraine, bolstering the country's terms of trade, a key metric underpinning the exchange rate rally.
Over the past two days, the Aussie has had other bullish catalysts, which have propelled AUD/USD more than 2.7% towards the 0.7400 area. First, Beijing announced that it will implement measures to boost the country's economic growth. A stable and healthy expansion in China benefits Australia, considering the strong trade relationship between the two nations.
The strength of the Australian labor market has also supported AUD/USD. For instance, employers added 77,400 workers in February, almost double the forecast, bringing the unemployment rate to 4%, a 13.5-year low.
The brightening employment picture will help accelerate consumer spending, bolstering the argument to start raising borrowing costs sooner than expected. Most traders still believe the RBA will begin its lift-off in August, but others are leaning toward a June move. That said, it is important to watch how expectations evolve, but if a June hike becomes the baseline scenario, AUD could see further near-term gains (from a fundamental perspective).
Focusing on technical analysis, AUD/USD has risen more than 2.7% in the last couple of days and broken above its 200-day simple moving average, but is now approaching key trendline resistance near 0.7420. Pricesare likely to be rejected lower from those levels, but if bulls manage to clear this hurdle, we could see a move towards 0.7490, the 50% Fibonacci retracement of the February 2021/January 2022 decline.
Should bears regain control of the market and cause temporary weakness, support lies near the psychological 0.7300 mark. If this floor is breached, sellers could drive AUD/USD towards this week's low at 0.7165.
| Change in | Longs | Shorts | OI |
| Daily | -1% | 13% | 1% |
| Weekly | 47% | -53% | 4% |
AUD/USD TECHNICAL CHART
AUD/USD chart prepared using TradingView
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---Written by Diego Colman, Contributor
