Australian Dollar Q1 Technical Forecast: Reliant on Q1 Macro Stimuli

The Aussie dollar has enjoyed some much-needed support towards the end of 2022 but going into Q1 of 2023, much depends on inflationary pressures as well as overall risk sentiment. With the Australian dollar being a ‘pro-growth’ currency, fears around a global recession will not aid in AUD upside particularly against the U.S. dollar which will likely be preferred as a safe-haven alternative in this situation.

From a commodities perspective, the success of Australian exports is greatly tied to China’s re-opening but with the COVID situation rife with uncertainty at present, the future of the commodities complex remains blurry.

The Federal Reserve’s last address in December outlined higher revisions with regards to core inflation and the Fed funds rate (terminal rate) which reiterates their fight against inflation and persistent tightening measures. A hawkish surprise after softening inflation in the region has garnered USD support and could suppress Aussie gains in Q1 of 2023.

The Australian economy looks to be benefitting from softening inflation but other metrics such as GDP and unemployment seems to be moving in the wrong direction. Considering the U.S. economy looks comparatively stronger, the AUD could be in for some downside pressure early next year.

AUDUSD Technical Analysis

Weekly Chart of AUDUSD

Chart prepared by Warren Venketas, Source TradingView

Weekly technical analysis gives a broader picture of the Aussie’s recent rally but may be faltering due to fundamental dynamics. The RSI currently reveals market indecision as well trading around the midpoint 50-level favoring neither bullish nor bearish momentum.

Weekly Chart of AUDUSD

Chart prepared by Warren Venketas, Source TradingView

Focusing in on the daily chart above, the developing rising wedge chart pattern (black) is coupled with bearish/negative divergence on the RSI that traditionally leads to subsequent downside. While this may come to fruition, I don’t anticipate a significant leg lower which should keep the AUD/USD pair in and around the 0.67-0.68 trading range for Q1.

Key Resistance Levels:

-0.7000

-0.6916

-200-day SMA (blue)

-0.6800

Key support levels:

-0.6700

-Wedge support

-0.6641

-0.6585

-0.6551