Australian Dollar Outlook: Bullish Momentum Builds Above 70c

Summary

The Australian dollar (AUD) is showing strong bullish momentum, maintaining a position above the 0.70 mark against the US dollar (AUD/USD). This upward trend is supported by a recent bullish engulfing signal at the 20-day Exponential Moving Average (EMA). The upcoming inflation data and commentary from the Reserve Bank of Australia (RBA) are critical in determining whether the AUD can extend its gains towards the 2023 high of 0.7157 or if it will face a period of choppy trading.

Recent Performance

The AUD has appreciated against all major currencies, with notable performances including:

• AUD/USD has risen for five consecutive weeks, marking its best performance since July 2024.
• AUD/JPY is on track for a sixth consecutive month of gains, nearing a pivotal level from 1991.
• AUD/NZD has reached a 13-year high following a less hawkish stance from the Reserve Bank of New Zealand (RBNZ).
• AUD/CAD has seen its best run since 2010, rising for nine weeks.
• GBP/AUD and EUR/AUD have both declined, with GBP/AUD falling for seven weeks, the worst since April 2022.

Economic Data and Events

This week, the RBA's policy outlook is under scrutiny, particularly in light of the inflation report expected to show a headline figure trending higher at 3.8% year-on-year. Despite this, it is anticipated that the RBA will not make immediate policy changes unless the CPI report reveals unexpectedly high numbers. Recent employment figures have been mixed but lean towards the positive, keeping the RBA vigilant but not necessarily ready to act.

Market Sentiment and Tariff Concerns

Political developments, including Donald Trump's upcoming State of the Union Address, may reignite discussions around tariffs, which could introduce volatility into the market. The potential for a new 10% global tariff could heighten trade tensions, impacting risk-sensitive assets like the AUD/USD.

Technical Analysis

From a technical perspective, the AUD/USD is showing a clear upward trend. The recent bullish engulfing candle formed around the 20-day EMA suggests that bulls are defending the 0.70 level. Traders are advised to look for buying opportunities on dips, with targets set at the 2023 high of 0.7157 and potentially the June 2022 high of 0.7282. Conversely, a decisive break below 0.70 could shift focus to the 0.69 level.

Conclusion

Overall, the Australian dollar is positioned for potential gains, but upcoming economic data and geopolitical developments will play a crucial role in shaping its trajectory. Traders should remain alert to market signals and adjust their strategies accordingly.