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The Australian dollar has been rising against the greenback, despite the Reserve Bank of Australia keeping the nation’s official interest rate on hold at the historic low level of 0.10 percent earlier today.
RBA policy members decided to keep the cash rate on hold, despite record-breaking growth in the property market and fears Australia is approaching a housing affordability crisis.
The Australia dollar is rising due to risk-on market sentiment. The sudden pump higher in stocks and oil is due to the fact that fears about the Omicron variant being less deadly than feared.
On most occasions the Australian dollar rises when sentiment is risk-on in financial markets. This is a double-edged sword as last week’s crash in stock and commodity prices heavily effected the AUDUSD.
With the RBA deciding to keep the cash rate on hold despite record-breaking growth in the property market, the RBA could be wanting to see improvements in the labour market lift wages growth and inflation.
If the RBA to does decide to raise rates then it would almost certainly be due to spiralling inflation pressure, and also they probably need to see borders reopen before concluding that the economy is on a sustainable path.
According to the ActivTrader market sentiment tool some 70 percent of traders are bullish towards the AUDUSD pair, which to me still suggest further short-term if we apply a contrarian mentality.
In order for the AUDUSD to really build sustained upside momentum we probably need to see strong bearish sentiment bias towards the Aussie emerging. As things stand, the bullish sentiment is not a good sign.
AUDUSD Short-Term Technical Analysis
The four-hour time frame shows that significant amounts of MACD histogram price divergence has formed, which extends up towards the 0.7300 resistance area.
Furthermore, a sizable, inverted head and shoulders pattern will form if the price reaches the 0.7180 level. If bulls can rally the pair towards the 0.7180 area then an inverted head and shoulder pattern with over 200 points of upside potential will form.
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AUDUSD Medium-Term Technical Analysis
Looking at the daily time chart the AUDUSD pair does not yet have a number of strong buy signals, however, technical indicators are hinting that a bounce could be on the horizon.
The MACD indicator shows bullish divergence towards the 0.7350 level. A buy signal is also in play if we judge that the RSI indicator is extremely oversold, hence a technical bounce is possible.
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