Forecast for the Australian Dollar: Bearish
The Australian Dollar is still vulnerable to a pirouette in the US Dollar. Although rate increases have come and gone, the debate is only becoming louder. As worries about a recession increase, sentiment keeps shifting. Where to trade AUD/USD?
Last week, the Australian Dollar suffered as a result of the US Dollar’s spectacular surge in response to growing recessionary concerns. On Wednesday, the Federal Reserve raised its target range by 50 basis points to 4.25% – 4.50%. The shift was generally predicted despite a slightly softer US CPI the day before.
Despite the addition of 64k jobs in November, Australia’s unemployment rate is still at multi-generational lows of 3.4%. This is in addition to a growing trade surplus from the previous week.
The remainder of the underlying picture is ambiguous towards the year’s close due to disappointing construction approvals and retail sales figures. Rate increases by the RBA have affected those numbers.
Although real GDP is less spectacular when adjusted for inflation, nominal GDP is still strong at 5.9% annually.
After ECB President Christine Lagarde and Fed Chair Jerome Powell reminded markets that they are dedicated to battling inflation rather than focused on supporting economic development, the large changes of last week came about.
The two biggest central banks in the world had changed their attitude from earlier decades when they supported growth at the risk of excessive inflation.
Price stability is essential for an economy’s long-term success. The market doesn’t understand this adequately.
No noteworthy Australian statistics are due out this week, while the US will primarily see secondary economic measures. Due to this, the AUD/USD exchange rate may be susceptible to shifts in risk sentiment, especially in the wake of any statements from the RBA and the Fed.
How to trade the AUD/USD?
TECHNICAL ANALYSIS OF AUD/USD
Following a 3-month high last week, the AUD/USD pair collapsed toward this month’s low of 0.6669 but could not go below it, suggesting that it may still act as support.
It may have more significance since the 34- and 100-day Simple Moving Averages (SMA) are close.
The earlier high of 0.6893 and 0.6956 may provide resistance since they are close to the 200- and 260-day SMAs, respectively. A prior high of 0.6916, which lies in between, may serve as resistance.
Support may be found at the prior lows of 0.6585, 0.6387, 0.6272, or 0.6170 on the downside. A possible support level is a breakpoint at 0.6548.
Support might be seen in an ascending trendline, now crossing at 0.6490.
