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AUD/USD Outlook: Bulls Are Taking A Breather After Strong Three-Day Advance

The Australian dollar is consolidating under new two-week high, hit after nearly 2.5% advance in past three days, sparked by decision of China’s central bank to cut the amount of cash that banks must hold in reserve, as the Aussie as often used as a proxy for China actions.

Higher Asian stocks also added to positive sentiment by boosting risk demand.

Recovery from 0.70 support zone, where larger downtrend found footstep, faced headwinds from falling 20DMA (0.7183) and just ahead of pivotal Fibo barrier at 0.7208 (38.2% of 0.7555/0.6993 downleg), with firm break here needed to generate reversal signal and open way for stronger recovery.

Consolidation should stay above broken 10DMA (0.7108) to keep bulls in play, with rising momentum on daily chart (although still in the negative territory) underpinning the action.

Also, bullish engulfing pattern that is forming on a weekly chart would add to positive signals.

On the other side, the fundamentals may not work in favor of the Aussie, as the Australian central bank decided to keep ultra-loose policy for some time and required patience, while markets await US inflation data this week and Fed policy meeting next week, for fresh signals.

Inflationary pressures are expected to remain high in the US that may prompt the central bank to announce faster tapering process that would lead towards earlier than expected rate hike.

Hawkish Fed (as many expect) would boost the US dollar and widen divergence between two central banks’ policies a that would weigh on the Australian dollar.

Res: 0.7183, 0.7208, 0.7259, 0.7274.
Sup: 0.7135, 0.7108, 0.7100, 0.7063.

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