The Australian dollar has been in a strong uptrend against the US dollar, as seen on the 4-hour and 1-hour time frames. Price has made a strong break of a key resistance level recently, giving support to a potential long-term uptrend continuation.
A rising trend line can be drawn to connect the price’s recent dips and retracements. A pullback might take place in the near term, possibly until the broken resistance level at .9300.
Fundamentals strongly favor the Australian dollar, as the RBA (Reserve Bank of Australia) has indicated that it is no longer looking to cut interest rates in the foreseeable future. This is because the economy has shown strong progress in growth and inflation, removing the need for the central bank to loosen monetary policy and add stimulus.
The Australian central bank has also emphasized that the impact of their recent easing moves is just kicking in, which means that there’s no need to ease further. On the other hand, the US Federal Reserve showed some signs of division within the monetary policy committee, as not all members agree with Chairperson Janet Yellen’s forecast that the central bank could hike rates around six months after asset purchases end.
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Jobs reports from the Australian and US economies also show a divergence. Australia just printed a strong jobs increase for the month of March, nearly twice as much as the estimate and enough to spark a large improvement in the country’s jobless rate. The US economy, on the other hand, released a weaker than expected non-farm payrolls report for the same month. The gains in hiring were not enough to offset the weakness seen during the cold December and January months and were also short of pushing the jobless rate down from 6.7%.
With that, the ongoing uptrend could continue as the path of least resistance is upward. While the US is starting to reduce its stimulus efforts, this poses the threat of an economic slowdown in the country as some indicators show that the recovery isn’t set in stone yet. In this case, the US dollar could lose further ground to its major currency counterparts, particularly those that are gaining support from improving economic performance.
Bear in mind though that Chinese economic performance and overall market sentiment play a role in dictating AUD/USD long-term price movement, as the higher-yielding currency typically rallies when risk appetite is on.
Prepared by Aayush Jindal, Chief Technical Strategist at Capital Trust Markets
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