The Australian Dollar (AUD) struggled against the US Dollar (USD), hovering around $0.6589, impacted by a strengthening US dollar and uncertainties surrounding interest rate cuts. The AUD’s earlier gains, sparked by China’s potential market rescue package, were erased as traders awaited concrete actions from Beijing.
Domestically, positive data revealed a rise in Australian private sector activity in January, but concerns lingered as services activity continued to contract for the fourth consecutive month. Prime Minister Anthony Albanese’s announcement to consult lawmakers on tax cuts for higher earners added a layer of uncertainty.
On the global front, the yen strengthened against the dollar due to expectations of the Bank of Japan exiting stimulus measures, while the US dollar index remained resilient. Traders recalibrated expectations for Fed rate cuts, contributing to the dollar’s strength.
Technical
The 4-hour chart shows that the AUDUSD is currently trading around the 20-SMA as the price looks to sustain a push above the 23.60% Fibonacci retracement level, looking for direction in the short term. The price action remains below the 50-SMA (blue line) and 100-SMA (orange line) but sits above the 20-SMA (green line).
The downward-sloping 100-SMA trades below both the 20-SMA and 50-SMA, suggesting the presence of bearish momentum. The price needs to sustain a push above the 23.60% Fibonacci retracement level and 20-SMA for this momentum to reverse.
A sustained push above the 23.60% Fibonacci retracement level could trigger further gains towards the 38.20% retracement level (0.66031). A break above the initial resistance could confirm the bullish momentum, likely bringing the 50.00% Fibonacci retracement level (0.66272) and 61.80% Fibonacci retracement level (0.66514) into play.
Failure to hold above the 23.60% Fibonacci retracement level could lead to selling pressure towards the initial support at 0.65520. A break below this level could expose the 0.65250 support level in the short term.
Summary
The AUDUSD outlook is somewhat mixed in the short term. While the recent improvement in Australian business activity and bullish moving average crossover offer some hope, rising US yields and mixed market sentiment could cap the upside.
Sources: TradingView, Trading Economics, National Australia Bank, Melbourne Institute, Reuters.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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