Short- and Medium-Term Outlook for the Australian Dollar
The Australian Dollar from an Economic Perspective
The Australian dollar received some support due to “hawkish” sentiment at the Reserve Bank of Australia (RBA), as the currency rose on Tuesday, particularly following the RBA’s hawkish statements.
The minutes from the Reserve Bank of Australia’s (RBA) latest monetary policy meeting showed a unanimous decision by the Board to raise interest rates by a quarter of a percentage point to 4.60%, with concerns expressed that inflation would remain at very high levels for an extended period.
Andrew Book, an economist at Goldman Sachs, noted that the meeting minutes reflect a hawkish stance (a tendency to raise rates), given the Board’s focus on concerns regarding domestic demand excess, with almost no mention of previous interest rate hikes or risks that could negatively impact the economy.
On the other side of the U.S. economy, the dollar fell on Tuesday from its highest levels in 18 months amid falling oil prices, as investors shifted their focus to the Federal Reserve’s interest rate path, betting that tensions in the Middle East would remain contained ahead of the U.S. midterm elections.
September’s Consumer Price Index data, scheduled for release on Wednesday, is expected to provide further clues regarding the likelihood of the Federal Reserve tightening monetary policy.
The Australian Dollar from a Technical Perspective
The Australian dollar is trading within an upward price channel on the four-hour chart.
The pair reached near the lower boundary of this channel and has now rebounded upward, driven by a positive MACD divergence.
The pair also retested the levels of a broken downtrend on the daily chart. It is worth noting that at the start of its rally within the upward price channel, the pair had rebounded from the long-term uptrend levels on the weekly chart near the 0.6900 level.
Based on this, we expect the pair to rise further in the coming period, targeting 0.7015 as an initial target, then 0.7120, and finally the major resistance levels around 0.7200.
This scenario would fail if the pair breaks below the 0.6900 level on a 4-hour candle.
