AUD/USD Rallies Off Support but Trend Remains Bearish

AUD/USD OUTLOOK:

• AUD/USD rebounds following last week’s sell-off
• The rally in U.S. equities boosts appetite for riskier currencies
• Despite today’s moves in FX markets, geopolitical tensions in the Middle East create a challenging backdrop for the Australian dollar

Most Read: EUR/USD Perks Up After Selloff but Geopolitics Create Risks. How?

After a steep sell-off late last week, the Aussie rebounded against the U.S. dollar, boosted by optimistic sentiment, with the upswing in Wall Street’s equity markets providing support to more risk-oriented currencies. Against this backdrop, AUD/USD advanced nearly 0.8% to 0.6343, coming within striking distance from overtaking overhead resistance in the 0.6350 area.

Despite today’s movements, the Australian dollar maintains a bearish bias, particularly when examined from a technical perspective. The sequence of lower highs and lower lows coupled with the pair’s position below critical moving averages and a key descending trendline that has guided the market lower since July, all contribute to reaffirming the earlier assessment of a negative outlook.

From a fundamental standpoint, the geopolitical climate in the Middle East stands out as a potential weak point for the Australian dollar. While there was no substantial escalation in the Israel-Hamas war over the weekend, the situation could change soon, with Prime Minister Benjamin Netanyahu expected to greenlight a ground invasion of the Gaza Strip in the upcoming days.

Looking for informative insights into where the Australian Dollar is headed and the crucial market catalysts to keep on your radar? Explore the answers in our Q4 trading guide. Grab a copy today!

Any development that raises the geopolitical temperature in the Middle East is likely to exert downward pressure on high-beta currencies in the near term. This could lead to renewed losses for AUD/USD. Meanwhile, the U.S. dollar, known for its safe-haven appeal during periods of elevated uncertainty and increased volatility could command leadership in the FX space.

Focusing on technical analysis, AUD/USD rebounded from support around the 0.6300 handle on Monday, but failed to clear a key ceiling at 0.6350. It is imperative that traders keep a watchful eye on this area in the coming days, bearing in mind that a breakout could open the door to a move toward trendline resistance at 0.6425. On further strength, attention shifts to 0.6460, followed by 0.6510.

On the other hand, if sellers stage a comeback and incite a pullback from the pair’s current position, the first defensive line against bearish forces can be found within the 0.6300/0.6285 range. AUD/USD may encounter support in this region during a market reversal, but in the case of a breakdown, the bearish pressure could pick up pace, setting the stage for a possible retest of last year’s lows 0.6170.

Interested in learning how retail positioning can shape the short-term trajectory of the Australian Dollar? Our sentiment guide has the information you need—download it now!

AUD/USD TECHNICAL CHART

AUD/USD Chart Created Using TradingView