One of the most followed currency pairs AUD/USD recently showed high volatility. It lost all of its day’s intraday advances after touching a new six-month peak of just over 0.6540. Following that top, the duo finally broke out of a Symmetrical Triangle pattern on the daily time frame. This breakout is just another signal that the time is ripe for more movement. Now, AUD/USD is trading some 0.3% higher just under the 0.6500 level, showcasing its strong performance in the foreign exchange market this year.
The outlook for the Australian dollar (AUD) performance is very contingent on US economy, forces and impacts. Major factors include the direction of interest rates determined by the Reserve Bank of Australia (RBA) and the overall state of the Chinese economy, which is Australia’s biggest trading partner. At the same time, investors are turning their focus on some key economic data ahead that could shape the AUD’s value in the next few days.
Technical Analysis of AUD/USD
The recent breakout from the Symmetrical Triangle continuation formation indicates a likely bullish trend in the AUD/USD pair. The formation more often suggests periods of consolidation before a big breakout or breakdown. As the pair grows firm on this breakout, traders are bullish on its new surge upside. If AUD/USD breaks above its prior peak 0.6515 it will then look to target the November 25 high at 0.6550. Moreover, it could even break the key round-level resistance at 0.6600.
The technical indicators support this bullish outlook. Moreover, the 20-day Exponential Moving Average (EMA), currently at 0.6426, has begun to slope upwards, adding to the bullish trend seen in the past few sessions. The 14-day Relative Strength Index (RSI) is doing all it can to push above the key resistance level at 60.00. Making it over this milestone would be a sign of meaningful upward market momentum.
Traders must remain cautious. If the price breaks below the March 4 low of 0.6187, the pair may experience further declines. It could be targeting February’s low of 0.6087 and could even challenge the important 0.6000 key psychological support.
Economic Influences on Australian Dollar
Yet the Australian dollar’s performance is deeply intertwined with some of these key economic indicators. The chief driver is the interest rates set by the RBA. That’s what keeps the AUD compelling for investors, and they’ve been instrumental in keeping the AUD attractive to sizable investors. Higher interest rates usually lead to a stronger currency since they provide higher returns on investments made in that currency.
Additionally, Australia’s growth rate and inflation levels significantly influence the AUD’s value. A rapid overall rate of economic expansion increases public confidence in the currency. With inflation surging, worries about inflation’s effect on purchasing power will lead to shifts in the monetary policy stance. This week, investors are nervous as they await Australia and the United States’ next inflation numbers. Read these reports to get a better idea of future interest rates and what might change them.
Australia’s Trade Balance impacts AUD performance, particularly in relation to its largest export commodity: Iron Ore. Changes in global demand for Iron Ore can dramatically impact Australia’s short-term economic vitality and therefore the strength of their currency.
Market Outlook and Future Projections
Looking ahead, market participants are keenly watching for any signs of change in economic data that could affect the AUD/USD pair’s trajectory. The release of US inflation data on Friday and Australia’s inflation figures on Wednesday will be critical in shaping market sentiment.
Should the Australian economy demonstrate resilience through positive inflation and trade balance reports, it may further enhance investor confidence in the AUD. On the flip side, worse-than-expected economic indicators are likely to spike market volatility and result in downside risk for AUD/USD.