Australian Dollar Price Forecast
- A weak fundamental backdrop saw the Australian Dollar falter compared to the US Dollar, but a recovery effort has since been staged
- With technical resistance overhead, the AUD/USD rebound may fizzle out as retail traders remain net-long
- However, the bearish bias offered by IG Client Sentiment Data is weakening as traders reduce long exposurewhich highlights the potential for a bullish continuation
Australian Dollar Price Forecast: AUD/USD Rally May Fizzle Out
The Australian Dollar suffered a precipitous decline in July and August as trade war fears, a dovish RBA and a deteriorating global growth outlook worked to weigh on the Aussie Dollar’s prospects. Concurrently, the US Dollar (via the DXY Dollar Basket) drove higher. The diverging currency valuations saw AUDUSD drop nearly 6% from its July 19 peak to its August 7 trough. After bleeding lower throughout August, the Australian Dollar has staged an admirable recovery rally – climbing more than 2.5% versus USD in September thus far – bolstered by thawing US-China trade tensions.
AUDUSD Price Chart: Daily Time Frame (December 2018 – September 2019) (Chart 1)
That said, AUDUSD now nears technical resistance. Coupled with an uncertain fundamental backdrop, the technical price barriers could cause the rally to fizzle out. Currently trading near a horizontal level that marks various lows in May, AUDUSD has already exhibited some indecision despite the level’s limited technical merit. Therefore, subsequent resistance around 0.6909 – the pair’s July low – and the confluence of resistance around 0.7000, could look to offer more convincing rebukes.
AUDUSD Price Chart: 4 - Hour Time Frame (May – September) (Chart 2)
As for support, the Australian Dollar may look to the 2016 low around 0.6828 before seeking subsequent assistance at the August and September lows slightly beneath 0.6700. Thus, given the bounty of resistance overhead and the slope of the recent rally, the Australian Dollar could experience a brief reversal to consolidate recent gains or extend the broader downtrend in earnest. Further, IG Client Sentiment Data reveals that retail traders are net-long which offers a bearish contrarian bias.
Retail trader data shows 56.7% of traders are net-long with the ratio of traders long to short at 1.31 to 1. In fact, traders have remained net-long since July 19 when AUDUSD traded near 0.69735; price has moved 1.5% lower since then. The number of traders net-long is 12.1% lower than Wednesday and 24.4% lower from last week, while the number of traders net-short is 5.7% lower than Wednesday and 4.3% higher from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests AUDUSD prices may continue to fall. Yettraders are less net-long than yesterday and compared with last week which undercuts the bearish bias as traders with long-exposure become less certain in their position. Consequently, IGCS data could suggest AUDUSD is at turning point. For further commentary on the pair and client sentiment data, sign up for my weekly sentiment walkthrough webinar or follow me on Twitter @PeterHanksFX.
--Written by Peter Hanks, Junior Analyst for DailyFX.com
Contact and follow Peter on Twitter @PeterHanksFX
Read more:Dow Jones, Nasdaq 100, DAX 30, FTSE 100 Forecasts for the Week