Australian Dollar Technical Outlook: AUD/USD Rally Gains Steam


The Australian dollar’s rally against the US dollar is gaining momentum on growing optimism over China’s reopening and rising commodity prices.

AUD/USD has been nicely guided within a rising channel since October. Earlier this month, the pair rose above key resistance on the 200-day moving average, confirming that the short-term trend remains up. This follows a hold last month above key support at the mid-November low of 0.6585 – a key support for cementing the higher-top-higher-bottom pattern,as pointed out in the previous update.

Price, Sentiment, Fundamental Snapshot



From a big-picture perspective, AUD/USD has retraced 100% of its August-October loss – the last ‘supply’ point. In general, when a market can fully retrace the last supply point, it tends to indicate exhaustion in selling pressure or capitulation. In such instances, the path of least resistance tends to be sideways to up. In this regard, AUD/USD is now testing a significant resistance that would be vital in shaping the medium-term trajectory.

AUD/USD Weekly Chart




As the weekly chart shows, the pair is now running into a tough resistance area: the 200-week moving average, coinciding with the 89-week moving average and the August high of 0.7135. Any break above the barrier could pave the way toward the April high of 0.7660. Importantly, it would be a building block for medium-term AUD strength.

AUD/USD Daily Chart



Having said that, the ceiling around 0.7135 is strong, and a pause/minor retreat can’t be ruled out in the short term, especially given the US Federal Reserve interest rate decision next week. Futures are pricing in a 25 bps hike when the Fed policymakers end their two-day meeting on 1 February. Whether the Fed tones down its hawkishness is key given expectations that the US central bank will back off from its tightening. Any disappointment in this regard could lead to a brief setback in AUD/USD’s rally.

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