Australian Dollar Outlook:
- AUD/JPY and AUD/USD rates have broken multi-month downtrends.
- A pullback in US yields, a rise in commodity prices, and a rebound in equity markets is helping the high beta Australian Dollar stage a rally.
- According to the IG Client Sentiment Index, AUD/JPY rates have a mixed bias while AUD/USD rates have a bullish bias.
More Favorable Conditions for Aussie
The past few days have seen several fundamental factors shift in the Australian Dollar’s favor. Commodity prices have rallied, with base metals, precious metals, and energy prices turning higher. Risk appetite has improved, as a decline in US Treasury yields coupled with a continued rally by US equity markets has reduced demand for safe havens in FX markets. In turn, the Aussie has found itself on the verge of a more meaningful technical turn higher, after both AUD/JPY and AUD/USD rates broke above multi-month downtrend resistance.
AUD/USD RATE TECHNICAL ANALYSIS: DAILY CHART (October 2021 to October 2022) (CHART 1)
AUD/USD rates are a few weeks removed from setting a fresh yearly low, but over the past few days they have found themselves climbing above the sharp downtrend in place since mid-September. Moreover, for the first time since September 12, the pair is on the verge of closing above its daily 21-EMA (one-month moving average). Momentum is starting to improve, with daily MACD climbing (albeit below its signal line) and daily Slow Stochastics having moved above their median line. Near-term resistance lies above 0.6500 in the coming sessions.
IG Client Sentiment Index: AUD/USD RATE Forecast (October 25, 2022) (Chart 2)
AUD/USD: Retail trader data shows 71.04% of traders are net-long with the ratio of traders long to short at 2.45 to 1. The number of traders net-long is 7.94% lower than yesterday and 5.44% lower from last week, while the number of traders net-short is 32.79% higher than yesterday and 0.71% higher from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests AUD/USD prices may continue to fall.
Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current AUD/USD price trend may soon reverse higher despite the fact traders remain net-long.
AUD/JPY RATE TECHNICAL ANALYSIS: DAILY CHART (October 2021 to October 2022) (CHART 3)
But for a few days at the start of August, the beginning of September, and in early-October, AUD/JPY rates have been trading in a sideways range between 91.42 and 96.88 since the second week of June. But the pair is turning higher within this consolidation as momentum continues to build in a more bullish manner. AUD/JPY rates are above their daily 5-, 8-, 13-, and 21-EMAs, although the EMA envelope is not yet fully in bullish sequential order. Daily MACD is on the verge of crossing above its signal line, while daily Slow Stochastics are holding just below overbought territory. Should the rally continue, resistance lies ahead three-fold: the October high at 95.74; the range high at 96.88; and the yearly high at 98.60.
IG Client Sentiment Index: AUD/JPY Rate Forecast (October 25, 2022) (Chart 4)
AUD/JPY: Retail trader data shows 36.63% of traders are net-long with the ratio of traders short to long at 1.73 to 1. The number of traders net-long is 1.83% higher than yesterday and 21.28% lower from last week, while the number of traders net-short is 0.52% higher than yesterday and 8.13% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests AUD/JPY prices may continue to rise.
Positioning is less net-short than yesterday but more net-short from last week. The combination of current sentiment and recent changes gives us a further mixed AUD/JPY trading bias.
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--- Written by Christopher Vecchio, CFA, Senior Strategist
