AUD/USD Clears January High to Trade in Ascending Channel

Australia Dollar Outlook: AUD/USD

AUD/USD is under pressure following the kneejerk reaction to the Reserve Bank of Australia’s (RBA) first rate-cut since 2020, but the exchange rate seems to be trading within an ascending channel after clearing the January high (0.6331) earlier this month.

AUD/USD Clears January High to Trade in Ascending Channel

AUD/USD no longer carves a series of higher highs and lows after registering a fresh monthly high (0.6374) at the start of the week, and the exchange rate may consolidate over the coming days as it appears to be pulling back ahead of channel resistance.

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In turn, AUD/USD may snap the range bound price action from earlier this week even though the RBA ‘remains cautious on prospects for further policy easing,’ but the update to Australia’s Employment report may keep the exchange rate afloat as the economy is anticipated to add 20.0K jobs in January.

Australia Economic Calendar

At the same time, the Unemployment Rate is anticipated to increase to 4.1% from 4.0% during the same period, and signs of a cooling labor market may push the RBA to further unwind its restrictive policy as ‘there are signs that disinflation might be occurring a little more quickly than earlier expected.’

In turn, a weaker-than-expected employment repot may drag on the Australian Dollar as it fuels lower interest rates, and a potential bear-flag pattern may unfold should the exchange rate struggle to hold within the ascending channel from earlier this year.

With that said, AUD/USD may continue to pull back from the monthly high (0.6374) as it no longer reflects a bullish price series, but better-than-expected Australia Employment report may curb the recent weakness in the exchange rate as it limits the RBA’s scope to pursue a rate-cutting cycle.

AUD/USD Price Chart – Daily

Chart Prepared by David Song, Senior Strategist; AUD/USD on TradingView

• Keep in mind, AUD/USD cleared the January high (0.6331) after closing above the 50-Day SMA (0.6264) for the first time since October, and the exchange rate may no longer respond to the negative slope in the moving average as it appears to be trading with an ascending channel.
• Need a break/close above 0.6410 (50% Fibonacci extension) to bring the December high (0.6515) on the radar, with a breach above the 0.6510 (38.2% Fibonacci retracement) to 0.6520 (38.2% Fibonacci extension) region opening up 0.6590 (38.2% Fibonacci extension).
• At the same time, failure to hold above 0.6318 (November 2023 low) may push AUD/USD back towards the 0.6240 (61.8% Fibonacci extension) to 0.6270 (2023 low) zone as it pulls back ahead of channel resistance.
• Failure to hold within the ascending channel may bring the 0.6130 (23.6% Fibonacci retracement) to 0.6170 (2022 low) region back on the radar, with the next area of interest coming in around the monthly low (0.6088).

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--- Written by David Song, Senior Strategist

Follow on X at @DavidJSong