The Australian dollar has started to turn lower against the US dollar, despite the fact that the Australian central bank following through and enforcing its largest interest rate increase this year.
The Reserve Bank of Australia raised the cash rate by 50 bps to 1.35% during its July 2022 meeting. The move followed June’s 50-bps hike and a 25-bps increase in May, bringing the cash rate to a level not seen since May 2019.
The main problem right now for the AUDUSD pair is strength from the US dollar. The index is making fresh new multi-year highs every week, and all FX pairs are challenged against the buck.
Economists at Rabobank have revised lower their AUDUSD forecasts across the board to take account of USD strength. They expect the pair to march forward on a six-to-twelve-month horizon.
“While we see AUDUSD as remaining range bound for the remainder of this year, we continue to see the currency pair edging higher on a 6-to-12-month horizon. This is on the anticipation that USD strength will have peaked and in consideration of robust Australian fundamentals.”
For now, a series of head and shoulders patterns across both the short and medium-term time frames are pointing lower, which could spell more bad news for the Aussie.
According to the ActivTrader market sentiment tool some 68 percent of traders are bullish towards the AUDUSD pair, which to me still suggest further AUDUSD losses in the short-term if we apply a contrarian mentality.
In order for the AUDUSD to really build sustained upside momentum we probably need to see a stronger bearish sentiment bias towards the Aussie emerging. As things stand, the bullish sentiment should see the AUDUSD continue to push lower.
AUDUSD Short-Term Technical Analysis
The four-hour time frame shows that the AUDUSD pair has formed a new lower low. This is bearish in the short-term, however, a recently activated head and shoulders pattern is really bearish.
If the pattern is correct the AUDUSD pair could test back towards the 0.6450 level in the short-term. Only gains above the 0.6850 level will discourage bulls.
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AUDUSD Medium-Term Technical Analysis
Looking at the daily time chart the AUDUSD pair has currently breaking through the neckline of a head and shoulders pattern. It does look like more losses are now coming.
According to the size of this price pattern, which is typically bearish, the AUDUSD pair could stage a staggering 700-point price drop if the size of the pattern is correct.
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