The AUD/USD currency pair has experienced a notable surge recently, with the exchange rate rising by more than 3% after bottoming at 0.5910 on Wednesday. This increase is a reflection of the market’s embrace of a risk-on sentiment, primarily driven by a shift in trade dynamics and an optimistic outlook regarding inflation and central bank policies. In this article, TelaraX‘s analysts dissect the topic in detail.
Risk-on Sentiment
The rebound in the Australian dollar is largely attributed to a change in market sentiment, which was sparked by a significant announcement from the US President. He announced that he would pause his Liberation Day tariffs on over 70 countries. This decision had an immediate impact on financial markets, leading to a drop in the US dollar and a rise in stock prices across the board.
In particular, the Dow Jones Industrial Average surged by over 3,000 points, while the Nasdaq 100 and S&P 500 climbed by 500 points and 2,000 points, respectively. This marked the best day in years for US equities, signaling a shift toward risk-on assets.
Following this, the positive momentum extended to global markets. In Australia, the ASX 200 jumped by over 5%, while the VIX index, often referred to as the fear gauge, tumbled by more than 40%, reflecting a significant decrease in market volatility. Investors, buoyed by the easing of trade tensions, shifted their focus toward riskier assets like the Australian dollar.
Further supporting the bullish sentiment for the AUD/USD pair, analysts expect that the Federal Reserve will soon begin cutting interest rates. This anticipation arises as inflation continues to decrease, with economists forecasting a drop in the headline Consumer Price Index (CPI) from 2.8% in February to 2.6% in March.
Additionally, core inflation, which excludes volatile food and energy prices, is expected to fall from 3.1% to 3.0%. The drop in energy prices, with Brent crude and West Texas Intermediate (WTI) oil falling to $65 and $62, respectively, further supports the outlook of falling inflation. This scenario makes a rate cut by the Fed more likely, which could put downward pressure on the US dollar and provide additional support for AUD/USD.
AUD/USD Technical Analysis
From a technical perspective, the AUD/USD pair has experienced significant price action in recent days. After hitting a low of 0.5910 this week, the pair saw a strong rebound, climbing to a high of 0.6175. This upward movement brought the pair above the key resistance at 0.6085, which had previously been a significant support level in February.
One of the standout features of the recent price action is the formation of a bullish engulfing candlestick pattern. This pattern occurs when a larger bullish candlestick completely engulfs a smaller bearish candlestick, signaling a potential shift in market sentiment from bearish to bullish.
The bullish engulfing pattern is widely regarded as a strong indicator of potential upward momentum, particularly when it forms after a period of consolidation or downtrend.
Despite this bullish candlestick formation, the 50-day moving average remains above the current price, suggesting that the bears are still in control over the longer term. This indicates that the recent rally might be corrective and could face resistance near the 50-day moving average. Nonetheless, the bullish engulfing pattern suggests that the AUD/USD could continue to rise in the short term, especially if it successfully breaks above the key resistance levels.
Key Levels to Watch
- Resistance: The immediate resistance level for AUD/USD lies at 0.6175, followed by a critical level at 0.6275, the Woodie pivot point. A break above these levels would likely confirm the continuation of the bullish trend, opening the door for a further upside move.
- Support: On the downside, the pair has a key support level at 0.6085, which was previously a low in early February. A drop below this level would invalidate the bullish outlook and could signal a reversal in favor of the bears.
- 50-Day Moving Average: The 50-day moving average remains a significant resistance level for AUD/USD. A break above this moving average would be a crucial confirmation of the bullish trend.
Final Outlook
Overall, the outlook for AUD/USD remains bullish in the short term, supported by both fundamental and technical factors. The risk-on sentiment, driven by easing trade tensions and expectations of rate cuts by the Federal Reserve, has given the Australian dollar a strong boost. Additionally, the formation of the bullish engulfing candlestick suggests that the pair could continue its upward movement toward the next resistance level at 0.6275.
However, caution is warranted, as the pair remains below the 50-day moving average, and a drop below 0.6085 would invalidate the bullish outlook. Traders should closely monitor these key levels and watch for further developments in both the broader market and economic data, particularly inflation figures and central bank policies.
COMTEX_465026223/2922/2025-04-29T04:18:29
