Technical Analysis

AUD/USD Price Analysis – March 07, 2024

By LonghornFX Technical Analysis
Mar 7, 20244 min

Daily Price Outlook

Despite geopolitical tensions and concerns about a slowdown in China, the AUDUSD currency pair has maintained an upward trend and remained well bid around the 0.6589 level. The bullish bias can be attributed to the upbeat Australian Trade Balance, which shows an increase slightly below expectations but still having a positive impact on the AUD currency, indicating strong trade performance. Moreover, the strong Chinese trade balance could further support the AUD due to Australia's close economic ties with China.

Furthermore, the upticks in the AUD/USD pair were bolstered by the weakening US dollar, which lost traction due to increasing expectations for an interest rate cut later this year. During a congressional testimony, Federal Reserve Chair Jerome Powell indicated that the Fed is likely to lower interest rates later in the year. This suggests that the Fed is concerned about economic conditions and is taking steps to stimulate the economy by making borrowing cheaper.

Australian and Chinese Economic Data Impact on AUDUSD Pair

On the data front, Australia's economy showed mixed results with fourth-quarter GDP growth at 0.2% QoQ, below the expected 0.3%, while YoY GDP expanded by 1.5%, slightly above expectations. Meanwhile, the Trade Balance surplus fell short, reaching 11,027M in February against the expected 11,500M, with imports rising by 1.3% and exports growing by 1.6%.

Moreover, the AiG Industry Index improved to -14.9, and the Judo Bank Services PMI surged to 53.1, indicating expansion. Despite lower GDP growth, economists from Commerzbank believe the Reserve Bank of Australia (RBA) will delay rate cuts, supporting the Australian Dollar (AUD) for now.

Therefore, the mixed economic data from Australia, including lower-than-expected GDP growth and a trade surplus shortfall, could put some pressure on the AUDUSD pair, but the expectation of delayed rate cuts by the RBA may help support the Australian Dollar.

On the China front, the Trade Balance soared to $125.16B in February, surpassing expectations of $103.7B and the previous $75.34B. Imports and exports both saw year-on-year increases, with imports up by 3.5% and exports rising by 7.1%. This strong performance suggests robust activity in China's trade sector. The impressive trade balance figures from China, along with increased imports and exports, may strengthen the AUDUSD pair as it signals strong economic activity in China, a key trading partner of Australia.

US Dollar Decline and Interest Rate Cut Expectations Impact on AUDUSD Pair

On the US front, the broad-based US dollar continued its decline and remained well offered around 103.23, mainly due to lower US Treasury yields and increasing expectations for an imminent interest rate cut later this year. Federal Reserve Chair Jerome Powell expressed confidence in the US economy, expecting inflation to gradually reach the 2% target. Powell emphasized that the Fed's decisions on interest rates will depend on incoming data.

On a mixed note, Steven Friedman, a former NY Fed economist, warned against rushing to cut interest rates due to strong economic growth and unpredictable inflation. He believes there will be fewer rate cuts in 2024 than people think. Atlanta Fed President Raphael Bostic also expressed doubt about smoothly managing the economy's transition, suggesting two small rate cuts might happen but warned against celebrating victory over inflation too soon.

However, market indicators show a low chance of an interest rate cut in March but higher probabilities for cuts in May and June. Therefore, the AUD/USD pair will likely strengthen due to the US dollar's decline and the possibility of rate cuts, with market indicators suggesting higher probabilities for cuts in May and June.

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

AUD/USD - Technical Analysis

The AUD/USD pair has exhibited a modest rise of 0.32% to trade at 0.65842, capturing the attention of traders and analysts alike. The pivot point, set at 0.6616, delineates a critical juncture for the currency pair, with immediate resistance levels at 0.6610, 0.6633, and a further resistance at 0.6650 suggesting potential areas of price contention. Conversely, support levels are positioned at 0.6562, 0.6536, and 0.6486, providing a safety net against downward pressures.

Technical indicators provide a clearer picture of the market sentiment. The Relative Strength Index (RSI) stands at 70, edging into overbought territory, which might hint at a potential pullback or consolidation in the near term. The Moving Average Convergence Divergence (MACD) echoes this bullish sentiment, with a value of 0.0009 above the signal line of 0.0002, indicating a possible continuation of upward momentum. The 50-Day Exponential Moving Average (EMA) at 0.6528 further supports this trend, offering a baseline of support.

Given these dynamics, the technical outlook for the AUD/USD remains bullish, suggesting an opportune moment for traders to consider a buy stop at 0.65890. Setting a take profit at 0.66158 and a stop loss at 0.65658 could optimize trade outcomes while managing risk. However, traders should remain vigilant, as the current overbought conditions may signal an impending trend reversal or consolidation phase.



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