The AUDUSD pair is one of the strongest on the FX dashboard. It benefited from the stock market’s bullish trend, and it correlated positively with it since March.
However, the recent developments in financial markets call for caution on the AUDUSD pair. On the one hand, the RBA stimulus package delivered in November (including a rate cut) had no impact on the Australian Dollar. Could we see a delayed reaction?
On the other hand, the news that a promising vaccine is on the pipelines shifts the tone back to the USD. Let us not forget that the USD was sold as the growth sector was bought (i.e., tech stocks). Now that the market rotates back to value stocks, will the USD be bought again?
USD Demand Cannot By-Pass AUDUSD
Another possible source for the USD strength may come from the US elections result. The Treasury may change its modus operandi now that the Biden administration prepares to take over.
Also, the government shutdown due until the end of the year may also favor a higher USD. And this time, the stock market is not mandatory to react negatively – all the USD needs is a tech sector that suffers, and the rest of the market may do just fine in the meantime.
The USD already flexes its muscles. It trades higher against the JPY and the CHF, the strongest currencies so far in the pandemic. In this sense, investors coming back to the USD signal a return to normality, rather than to safe-haven. Gold ads to the pressure on the Aussie dollar, too, as rising yields leave way to a higher USD.
AUDUSD Head and Shoulders
This is a bearish technical perspective on the AUDUSD pair. The market forms a head and shoulders pattern with the neckline about to be broken. To trade it, bears may want to wait for 0.7250 before going short. For the trade, a stop at the highs is mandatory while the target can only be 0.70.
AUDUSD Price Forecast