(Technology Analysis) AUD/USD Forex Signal: Extended Decline in the Aussie as Dollar Strengthens

Market Overview: Persistent Weakness for the Australian Dollar

The Australian dollar (AUD) continues to face significant pressure, having hit its lowest level in over a month against the US dollar (USD). This downtrend reflects broader market dynamics, with the US dollar index continuing its upward trajectory, driven by a stronger-than-expected economic recovery in the United States. Key drivers for the weakening Australian dollar include rising odds of US interest rate cuts at a slower pace, uncertainty surrounding upcoming US elections, and growing geopolitical risks. In contrast, the Australian economy is grappling with an anticipated rate cut from the Reserve Bank of Australia (RBA), further contributing to the AUD’s vulnerability.

Recent economic indicators from the US have surpassed expectations, fuelling speculation that the Federal Reserve will opt for more moderate interest rate cuts, rather than the aggressive reductions seen earlier this year. Inflation remains stubbornly above the Fed’s target of 2%, and the labour market is showing signs of strengthening, which could provide less room for significant monetary easing. Meanwhile, the Australian dollar is also being weighed down by shifting domestic monetary policy expectations, with the RBA signalling a more dovish stance after keeping rates unchanged in its last meeting.

As geopolitical concerns escalate, particularly in the Middle East, the US dollar benefits from its status as a safe-haven currency, further pressuring the AUD. Analysts also point to the upcoming US election, where a potential Donald Trump victory could lead to heightened market volatility, despite his previous rhetoric supporting a weaker dollar.

Bearish View: Sustained Downtrend Likely for AUD/USD

• Sell the AUD/USD pair and target a take-profit level of 6620.
• Set a stop-loss at 0.6800.
• Timeline: 1-2 days.

The AUD/USD pair remains firmly in a bearish phase, exacerbated by the continued strength of the US dollar and growing pessimism around Australia’s economic outlook. The pair recently crashed below the key support level of 0.6700, reflecting broader sentiment that the Aussie is struggling against major global currencies. The bearish momentum is likely to persist, with traders eyeing further downside risks as market conditions favour the greenback.

The US Federal Reserve’s recent minutes revealed a divide among policymakers on whether to implement another significant rate cut, with concerns that large reductions could fuel inflationary pressures. As a result, traders are now anticipating smaller 0.25% cuts in upcoming meetings, supporting the dollar’s relative strength. In contrast, the RBA’s reluctance to leave the door open for further hikes suggests the Australian economy may see an easing of monetary policy, weakening the AUD further.

Bullish View: A Temporary Rebound for the Aussie

• Buy the AUD/USD pair and set a take-profit level of 6800.
• Add a stop-loss at 0.6620.

Although the prevailing trend is bearish, there is potential for a short-term correction or rebound, especially if external factors such as risk appetite or unexpected geopolitical developments shift market sentiment. The AUD/USD pair remains highly sensitive to fluctuations in global risk and any shifts in US economic data could influence traders to temporarily favour the Aussie. However, any upside is likely to be limited in scope, with strong resistance expected near the 0.6800 level.

Technical Analysis: AUD/USD Faces Further Weakness

From a technical perspective, the AUD/USD pair has continued its downward trajectory as it fell below a significant support level of 0.6795. This area previously acted as a key resistance during July and August but has now given way as the pair dropped to its lowest levels in weeks. The pair remains below both the first support of the Woodie pivot point and the 50-day moving average, indicating sustained downward pressure.

The Awesome Oscillator has consistently shown negative bars below the zero line over the past few days, reinforcing the bearish sentiment. Additionally, the two lines of the Klinger Oscillator have formed a bearish crossover, further signalling that the downtrend is likely to continue. As a result, sellers will be targeting the key support level at 0.6620, which is the lowest point reached on September 11.

In summary, the AUD/USD pair is likely to face continued pressure in the near term, with a bias towards further downside risks as long as the US dollar retains its strength and market sentiment remains cautious. Traders are advised to watch for any shifts in economic data or geopolitical developments that could provide temporary relief for the Australian dollar, though the overall outlook remains bearish.