Technical Analysis

AUD/USD Price Analysis – Oct 26, 2023

By LonghornFX Technical Analysis
Oct 26, 20234 min

Daily Price Outlook

The AUD/USD currency pair has failed to stop its downward rally and continued its decline for a second consecutive session, trading near its yearly lows on Thursday. However, the reason for its decline can be attributed to the strength of the US Dollar, which has been bolstered by higher US Treasury yields. Furthermore, Israel's Prime Minister, Benjamin Netanyahu, has announced the readiness for a potential ground assault in Gaza. This action could dampen risk sentiment in the market and further contribute to losses in riskier assets like the Australian Dollar. In contrast, the Reserve Bank of Australia (RBA) is expected to raise interest rates, a move that could help limit the losses of the AUD/USD pair.

Impact of Australian Inflation Data and RBA's Actions on AUD/USD

It's worth noting that Australia's recent inflation data has strengthened the probability of the Reserve Bank of Australia (RBA) raising interest rates by 25 basis points in its November meeting. Notably, the Consumer Price Index (CPI) showed a slight uptick in the third quarter of 2023, according to the Australian Bureau of Statistics.

RBA Governor Michele Bullock stated that the CPI increase, which was slightly higher than anticipated but still within the expected range, underscores the RBA's cautious approach. Their aim is to support the economy without pushing it into a recession.

In the current quarter, Australia's CPI has risen to 1.2%, up from the previous quarter's 0.8% and slightly above the market's expected 1.1%. On the economic front, Australia's S&P Global Composite PMI for October has declined to 47.3 from the previous 51.5. Both the Manufacturing and Services PMIs have also displayed a noticeable slowdown.

Hence, the prospect of an RBA interest rate hike in response to higher CPI could potentially strengthen the AUD and boost the AUD/USD currency pair, but concerns about economic slowdown may limit its impact.

Recent Developments and Their Impact on Currency Markets

Furthermore, the US Dollar Index (DXY) is currently on a winning streak, buoyed by robust US Treasury yields and improved preliminary S&P Global PMI figures. Geopolitical tensions are also driving investments in safe-haven assets. Israel's Prime Minister, Benjamin Netanyahu, has announced the potential for ground action in Gaza, and Iran's Foreign Minister, Hossein Amir-Abdollahian, has arrived in the USA for talks regarding the Hamas-Israel situation.

Therefore, this news could further bolster the US Dollar, which will likely exert downward pressure on the AUD/USD pair as demand for the USD as a safe-haven currency increases.

Meanwhile, the US S&P Global Composite PMI for October increased to 51.0, with the Services PMI at 50.9 and the Manufacturing PMI at 50.0. Moving on, investor attention will shift towards the US Q3 Gross Domestic Product (GDP) report on Thursday, with a specific focus on the US Core Personal Consumption Expenditures (PCE). In the meantime, Australia's Producer Price Index (PPI) will be in the spotlight on Friday.

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

AUD/USD - Technical Analysis

In the grand theater of the forex market, the AUD/USD currency pair has played a significant role. On this day, the pair trades at 0.627778, showing a decline of 0.49% during the Asian session. This movement occurs on a 4H chart timeframe, revealing a short-term glimpse of the pair's trajectory.

The pivot point, a linchpin for many traders, is set at 0.6287. This means that the immediate resistance level the AUD/USD might face lies at 0.6338. If the bullish sentiment continues, traders should keep an eye on the subsequent resistance levels at 0.6391 and 0.6432. However, if the bears dominate the scene, the AUD/USD could seek support at 0.6251, followed by 0.6214, and then at the crucial 0.6178 mark.

Delving into the technical indicators, the Relative Strength Index (RSI) stands at 34. This value indicates a bearish sentiment, as it's below the neutral 50 mark. Moreover, nearing the 30 level, it's inching closer to the oversold territory, hinting that the selling momentum might be overextended.

The MACD, which offers insights into the pair's momentum and potential reversals, currently reads a value of 0.00, with its signal line at -0.0008. This means the MACD line is slightly above the signal line, suggesting a potential shift towards an upward momentum, albeit weak.

The 50-Day Exponential Moving Average (50 EMA) for the AUD/USD stands at 0.6408. With the current price trading below this EMA, it underscores a short-term bearish trend. This is a noteworthy sign, implying that sellers have had the upper hand recently.

The overarching trend for AUD/USD is bearish, especially when trading below the 0.6287 mark, which interestingly forms a triple top pattern. This pattern, known for its bearish reversal connotation, could be indicative of a potential downward push. In the coming days, given the current data and market sentiment, the AUD/USD might test its immediate support levels, unless a significant bullish trigger enters the fray.

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