AUDUSD breaks out of bull flag, rides on bullish momentum

The AUDUSD is one of the currency pairs that had benefitted from the global supply chain disruption amid the Russo-Ukrainian war. As Western powers place sanctions on Russian crude oil and other commodities, the strain on the global commodities supply had sent commodity prices skyrocketing. The Australian dollar which is a commodity currency, is positively correlated to the prices of commodities. Despite the strengthening US Dollar against other major currencies, the AUDUSD managed to appreciate along with the greenback since late January 2022. In this article, we will examine some other drivers that played a part in the currency pair’s movement, as well as perform technical analysis to project the pair’s upcoming moves.

Robust jobs data in US

A key indicator that the US Federal Reserve uses to assess their monetary policy is by looking at the employment data. In March, the Unemployment Rate in the US fell to 3.6%, the lowest since February 2020 and it outperformed the market expectations of 3.8%. This healthy figure also resides below the Fed’s 4% benchmark rate for full employment. A strong labour market, paired with high inflation, makes a compelling case for a more aggressive monetary policy tightening by the Fed. The increased probability for a 50 basis point hike in May’s monetary policy decision would likely buoy the US Dollar.

Hawkish Expectation on RBA

The Reserve Bank of Australia (RBA) announced on Tuesday that it will keep its interest rate at 0.1%, in line with market expectations. However, speculations for a hike in the second half of 2022 has gained traction in recent weeks, as seen in the yield on Australia’s 10-year bond which had climbed nearly 100 basis points in just four weeks.

The Australian dollar would likely be bolstered by this hawkish expectation on the Australian central bank.

Technical Analysis

After bottoming out at 0.6967 on 28 January 2022, the technical setup for the AUDUSD had turned bullish as it is on an uptrend in a rising channel, and it recently broke out of a bull flag formation on the daily timeframe. Technical indicators like the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) show that the pair is enjoying some bullish momentum. Another sign that points to a continuation of the uptrend is a Golden Cross, whereby the shorter term 50 day exponential moving average (50 EMA) crosses above the longer term 200 EMA. A Golden Cross is regarded as a confirmation of a bullish trend reversal.

In the short term, we anticipate that the pair will rise to 0.7646 (R2) if the pair closes firmly above 0.7557 (R1), which coincides with the rising channel upper resistance line. Beyond R2, the next target lies at 0.78898 (R3). In the event the pair retraces to retest support, the 20 EMA would serve as a support and potential entry point.

Tuesday, April 5

USD – Goods and Services Trade Balance(Feb), S&P Global Composite PMI(Mar), S&P Global Services PMI(Mar), Fed’s Brainard speech, Fed’s Kashkari speech, ISM Services PMI(Mar), ISM Services Prices Paid(Mar).

Wednesday, April 6

USD – Fed’s Williams speech,

AUD – China Caixin Services PMI(Mar)

Thursday, April 7

USD – FOMC Minutes, Initial Jobless Claims(Apr 1), Fed’s Bullard speech,

AUD – Exports (MoM)(Feb), Imports (MoM)(Feb), Trade Balance (MoM)(Feb)

Friday, April 8

USD – Fed’s Williams speech