Australian Dollar Outlook: Bullish Momentum Builds Above 70c

Summary

The Australian dollar (AUD) is showing strong bullish momentum, with the AUD/USD pair holding above the 0.70 mark. This follows a significant bullish engulfing signal at the 20-day Exponential Moving Average (EMA). The overall trend appears constructive, but upcoming inflation data and commentary from the Reserve Bank of Australia (RBA) will be crucial in determining whether the momentum can push towards the 2023 high of 0.7157 or if the market will experience choppy trading conditions.

Recent Performance

The Australian dollar has appreciated against all major currencies, although its momentum has slowed against the US dollar and it has slightly declined against the Chinese yuan. Key highlights include:

• 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 for seven and nine weeks respectively, indicating a weaker performance against the Australian dollar.

Economic Data and Events

This week, the RBA's policy outlook is under scrutiny, particularly in light of the Consumer Price Index (CPI) data. The headline inflation rate is currently at 3.8% year-on-year, while the trimmed mean has also increased to 3.3%. Despite these figures, 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 alert but not necessarily prompting action.

Market Wildcards

Trade tensions are resurfacing, particularly with Donald Trump's upcoming State of the Union Address, which may reignite discussions around tariffs. The potential introduction of a new 10% global tariff could elevate market risks, particularly for risk-sensitive assets like AUD/USD.

Technical Analysis

From a technical perspective, the AUD/USD pair is showing a clear upward trend. The recent bullish engulfing candle formed around the 20-day EMA and the 70c handle suggests that bullish sentiment remains strong. Traders may 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 the 70c level could shift focus to the 69c handle.

Conclusion

Overall, the Australian dollar is positioned for potential gains, but upcoming economic data and geopolitical developments will play a significant role in shaping its trajectory. Traders should remain vigilant for any shifts in market sentiment that could impact the AUD/USD pair.