Bullish View
Place a buy stop at 0.7965 (slightly above the ascending channel).
Add a take profit at 0.8025 and a stop loss at 0.7900.
Bearish View
Place a sell order and a take-profit at 0.7920 (lower side of the channel).
Add a take profit at 0.7965.
The AUD/USD retreated in the overnight session as traders reflected on the performance of commodities, Jerome Powell’s testimony, and the Australian expenditure data. The pair is trading at 0.7955, which is a few pips below this week’s high of 0.7978.
Commodities Supercycle
The AUD/USD has been rallying recently in part because of the strong performance of commodities. In the past few months, most commodities like iron ore, copper, and crude oil have been rallying, helped by strong demand from China.
In a recent report, analysts at JP Morgan predicted that we are in the third major commodity supercycle that will see the uptrend continue. This is important for the pair because the Australian dollar is often viewed as a proxy for commodities.
Meanwhile, the pair is reacting to Jerome Powell’s final testimony yesterday. In it, he reiterated that the bank will continue supporting the economy until the US unemployment rate falls and inflation moves above 2.0%. He also said that the bank’s base case is that the US economy will rebound later this year.
The AUD/USD is also reacting to the relatively strong data from Australia. According to the statistics office, the country’s private new capital expenditure rose by 3.0% in the fourth quarter after it fell by 3.0% in the previous quarter. This increase was better than the expected 0.4%. In the same period, building capital expenditure rose by 0.7% while plant and machinery expenditure increased by 5.7%.
AUD/USD Technical Outlook
The AUD/USD pair reached a multi-year high of 0.7980 yesterday and then pulled back to the current 0.7955. On the four-hour chart, the overall uptrend is being supported by the 25-period and 50-period exponential moving averages. It is also above the Ichimoku cloud and the ascending black trendline. Also, the pair has formed a relatively small ascending channel.
Therefore, while the overall trend is bullish, we cannot rule out another pullback to the lower side of the channel at 0.7920. On the flip side, a move above the upper side will see bulls start targeting the next resistance at 0.800.
