Technical Analysis

AUD/USD Price Analysis – Jan 16, 2024

By LonghornFX Technical Analysis
Jan 16, 20243 min

Daily Price Outlook

The AUD/USD currency pair failed to halt its downward trend and remained well offered around the $0.6616 level. However, the reason for its decline can be attributed to the bullish US dollar and downbeat Australian data. The pair faces downward pressure after the release of the Westpac Consumer Confidence data for January, which showed a contraction. This might lead market participants to believe that the Reserve Bank of Australia (RBA) won't increase interest rates in its February meeting.

US Dollar Strengthens on Higher Treasury Yields, Hawkish Fed Comments, and Geopolitical Tensions

It's worth noting that Australia's Consumer Confidence, measured by the Melbourne Institute, dropped by 1.3%, reversing a previous gain of 2.7%. However, the Australian Dollar's decline was capped by the TD Securities Inflation data, showing a 5.2% year-on-year increase in December, up from 4.4% in November.

On a positive note, job advertisements in Australia improved by 0.1% in December, bouncing back from a 4.6% decline. In China, the People's Bank kept its medium-term facility rate steady at 2.5%, raising expectations for a future reduction in the Reserve Requirement Ratio. However, China's Consumer Price Index fell by 0.3% in December, contrary to the expected 0.4% decline, while the yearly Producer Price Index dropped by 2.7%, slightly more than the anticipated 2.6% fall.

Therefore, the drop in Australian consumer confidence and mixed economic data may exert downward pressure on the AUD/USD pair, reflecting uncertainty and potential economic challenges.

USD Strength and Geopolitical Tensions Impact AUD/USD Pair

Furthermore, the US Dollar Index (DXY) started the day on a positive note, boosted by higher US Treasury yields. Investor confidence in the USD strengthened after hawkish comments from Atlanta Fed President Raphael Bostic, who cautioned against premature rate cuts, foreseeing potential inflation fluctuations.

In the meantime, the geopolitical tensions, particularly the Israel-Gaza conflict affecting Red Sea trade, fueled risk aversion, contributing to USD gains. Barclays moved up its forecast for the first Fed rate cut to March, citing expectations of a 25 basis points reduction. Meanwhile, December's Producer Price Index (PPI) rose 1.0% YoY, and Consumer Price Index (CPI) surged to 3.4% YoY in December, exceeding market expectations and influencing the USD's performance.

Thus, the AUD/USD faced declines as the USD strengthened on higher Treasury yields, hawkish comments, geopolitical tensions, and Barclays' rate cut forecast.

AUD/USD Price Chart – Source: Tradingview
AUD/USD Price Chart – Source: Tradingview

AUD/USD - Technical Anaylsis

On January 16th, the Australian Dollar (AUD/USD) exhibited a notable decline, dropping by 0.71% to a current level of 0.66128. The 4-hour chart analysis reveals a pivot point at 0.6557. The AUD faces immediate resistance at 0.6602, followed by 0.6644 and 0.6688. On the downside, support levels are identified at 0.6509, 0.6466, and a seemingly out-of-place 0.6734, which may need correction.

The Relative Strength Index (RSI) is notably low at 28, indicating that the AUD/USD is potentially oversold. The Moving Average Convergence Divergence (MACD) shows a value of -0.001, with the signal line at -0.00182, suggesting a lack of strong directional momentum. The 50-day and 200-day Exponential Moving Averages (EMAs) are at 0.6654, further indicating potential resistance points.

A key pattern on the chart is a downward channel, reinforcing a bearish sentiment for the AUD, particularly below the 0.66333 mark. This trend suggests that the AUD is currently in a selling mode.

In conclusion, the short-term outlook for the AUD/USD pair appears bearish. Traders might consider a sell limit at 0.66333, with a take profit target near 0.6509 and a stop loss around 0.6688. However, given the oversold conditions, caution is advised as reversals are possible, especially if the pair tests and breaks above key resistance levels.

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