Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. You could sustain a loss of some or all of your initial investment and should not invest money that you cannot afford to lose. CFDs are complex instruments. You can lose your money rapidly due to leverage. Please ensure you understand how this product works and whether you can afford to take the high risk of losing money.

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 US LLC. This material does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. You should not treat any opinion expressed in this material as a specific inducement to make any investment or follow any strategy, but only as an expression of opinion. This material does not consider your investment objectives, financial situation or needs and is not intended as recommendations appropriate for you. No representation or warranty is given as to the accuracy or completeness of the above information. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. Any research provided should be considered as promotional and was prepared in accordance with CFTC 1.71 and designed to promote the independence of investment research. See our Summary Conflicts Policy, available on our website.

Explore the markets with our free course

Learn how to trade with IG Academy's online course.

Turn knowledge into success

Practice makes perfect. Take what you’ve learned in this forex strategy article, and try it out risk-free in your demo account.

Ready to trade forex?

Put the lessons in this article to use in a live account. Upgrading is quick and simple.

  • Trade over 80 major and niche currency pairs
  • Protect your capital with risk management tools
  • Analyze and deal seamlessly on smart, fast charts

Inspired to trade?

Put the knowledge you’ve gained from this article into practice. Log in to your account now.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading forex provider.

Stay on top of upcoming market-moving events with our customisable economic calendar.