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  • AUD/USD bouncing back into no man’s land as the US dollar sinks.
  • There are still constructive arguments for a lower AUD.

AUD/USD is currently trading at 0.7270 and between a range of 0.7191 and 0.7287. The US dollar has been sent packing as reports that the European Central Bank officials have become more confident in their outlook for the region’s recovery.

The report comes ahead of Thursday’s ECB monetary policy meeting and some analysts believe that the exchange rate will be a theme.

However, considering how heavily skewed bets have been against the US dollar when factoring the geopolitical risks, it will likely take more than a few comments from ECB officials to keep the dollar down.

Moreover, ongoing extraordinary monetary policy support from global central banks, not just the Fed, as well as the recent vaccine concerns, are enough to encourage support for the greenback.

Meanwhile, the Reserve Bank of Australia has so far not batted an eyelid at the current value of the AUD based on its expectation that the marked weakness of Australian Q1 Consumer Price Index inflation data will only be temporary.

Analysts at Rabobank pick out this factor as an important theme to consider and argue that markets could be too complacent about the Aussie.

The analysts said, with regards to the RBA’s approach tot he currency, ”in view of the economic slack in the economy, it is possible that policymakers will want to shake off the reputation of being the least dovish central bank in the G10 in the coming months.”

A Bloomberg consensus points to AUD/USD at 0.72 at the end of the year.

By contrast our forecast suggests scope for a move back towards 0.68 on a 3 month view.

Layered on top of these arguments are concerns about the economic impact of the drawn out lockdown in Melbourne and from the testy relations between Canberra and Beijing.

All these factor could conceivably weigh on AUD/USD in the coming months.

Daily chart

Technically, AUD/USD is no in no man’s land as it continues to fail on both sides of 0.7240 and 0.7280. 

Since the price failed to make a bullish run at the start of the week, the focus has flipped to the downside unless the bulls can get a foothold in the 0.73 area.

If there are repeated failures at resistance, a break of trendline support could open an opportunity to the downside. 

 

AUD/USD levels