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Australian dollar may rise as AUD/USD upside exposure fades

The Australian dollar may extend its breakout against the US Dollar above a 2013 trend line as retail investors’ upside exposure in AUD/USD dwindles.

Australian dollar, AUD/USD IG client sentiment: talking points

  • The Australian dollar may rise as long bets decline
  • AUD/USD breakout above 2013 trend line in focus
  • What are technical levels to watch for if prices fall?

AUD/USD IG client sentiment outlook

The Australian dollar could be readying to extend its rise against the US dollar since earlier this year based on signals from IG client sentiment (IGCS). In late March, IGCS implied that about 60% of retail investors were net long AUD/USD. Since then, that decreased to just above a 25% upside bias in late August. During this time, the Australian dollar advanced over 25%.

IGCS is typically a contrarian indicator. On 2 September, about 35% of retail traders were net long AUD/USD. Exposure to the upside declined by almost 11% and 7% over a daily and weekly basis respectively. From here, the combination of current sentiment and recent changes offers a stronger bullish contrarian trading bias in AUD/USD.

What are other factors that can influence price action in foreign exchange markets?

AUD/USD client positioning

Australian dollar technical analysis

From a technical standpoint, the AUD/USD-bullish outlook is underscored by the pair’s breakout above long-term falling resistance from the end of 2013. The weekly chart shows that while the breakout has been confirmed, prices got caught within highs from December 2018, establishing a key level of resistance as prices consolidated. A push higher exposes the December 2017 low on the way towards peaks from June 2018.

AUD/USD weekly chart

Focusing on the daily chart, guiding the Australian dollar higher has been the short-term 20-day simple moving average (SMA). While a close under it could raise the risk of a reversal, the medium-term 50-day SMA may reinstate the focus to the upside. Otherwise, the $0.7064-$0.7015 inflection range could be critical to watch for follow-through. Further losses would place the focus on the $0.684-$0.6777 support zone from early June.

AUD/USD daily chart

Publication date : 2020-09-03T09:59:06+0100

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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