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The Australian dollar is looking increasingly comfortable above the 0.7700 level against the US dollar as commodity prices remain well-bid, and the greenback is back under pressure versus most of the major currencies.
Commodity-related currencies, such as the Australian dollar, could be about to continue their recent bulls trends, especially with precious metals and oil looking more bullish on the fundamental front. The AUDUSD pair could in fact be poised to test back towards the 0.8000 level as selling interest towards the antipodean currency wanes.
Next week’s inflation report from the Australian economy, and the FOMC interest rate decision are likely going to be the big market movers for the AUDUSD pair. More dovish commentary from the FED bodes well for the Aussie, and risk-on sentiment.
Looking at the inflationary outlook for Australia, the Reserve Bank of Australia reaffirmed their commitment to maintaining highly supportive monetary conditions until at least 2024, when CPI inflation is close to the central banks 2 to 3 percent targets.
It is important to note that the Reserve Bank of Australia expect CPI inflation to rise temporarily, because of the reversal of some COVID-19 related price reductions. This could show up in next week inflation report, as parts of Australia are recovering, and boost the AUDUSD pair.
Business confidence also spiked sharply last month and is approaching some interesting levels, as can be seen on the chart above. The advent of COVID-19 has caused under investment in the mining sector, which is a global phenomenon, in that this is widespread across most commodity producing nations.
Should we see another super cycle in commodities emerge, this would be hugely beneficial to the Australian dollar, and particularly the AUDUSD pair, as commodity prices are likely to increase significantly. It is noteworthy that the AUDUSD surged above parity during the last commodity super cycle.
According to the ActivTrader market sentiment tool some 41 percent of traders are bearish towards the AUDUSD pair. Considering that we typically look to fade retail sentiment, it is probably not the perfect time for the Aussie to rally right now.
The AUDUSD pair has a notable price behaviour, in that it tends to trend sharply when it picks a price direction. Price pattern across various time frames is showing the path ahead right now, and when a trend may start.
AUDUSD Short-Term Technical Analysis
The four-hour time frame continues to show that a relatively small head and shoulders pattern is in play, although bulls and bears continue to battle around the neckline of the negative price pattern.
According to the overall size of the head and shoulders pattern the AUDUSD pair could reach the 0.7650 level in the short-term horizon.
It is possible that bulls could invalidate the bearish price pattern. Buyers need to rally the price above the 0.7815 level to invalidate the pattern, and prompt a counter-rally towards the current yearly high.
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AUDUSD Medium-Term Technical Analysis
Looking at the daily time chart, a large head and shoulders pattern has formed, following the recent bearish move towards the 0.7600 support level.
According to the overall size of the bearish price pattern, the AUDUSD pair could be about to drop towards the 0.7050 level.
AUDUSD traders should be aware that sellers have been struggling to ignite the pattern, and we are now seeing an attempt potentially invalidate this pattern. A move above the 0.8000 level could cause the AUDUSD pair to surge towards the 0.8500 level.
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