Is AUD/USD Aiming For Multi-Year Highs?| Daily Forex Analysis•Stelian Olar

Main talking points:

· Currently trading above psychological number 0.7000, a critical threshold.

· Fundamentals support continued up-move.

· Central Bank rules out intervention to check the current strength in the AUD.

· Dollar weakness adds to the buoyancy.

The AUD/USD had a big bull run after the fall in the initial months of the coronavirus impact. It fell from 0.7000 levels to near 0.5700 levels in a matter of three-and-a-half months, then rebounded strongly since the later part of March to touch 0.7200 levels in August - a wild run indeed. The moves were befitting its status as one of the most pro-risk currency.

The strong movements in AUD/USD also track the strength and weakness exhibited by the US dollar.

And, if we observe the volatile movements from a longer perspective, the Australian dollar seems to have completed its bearish-run that started after AUD/USD decisively crossed 0.9700 levels on the downside in 2013. From 2011 to 2013, the pair had made numerous attempts to break the multi-decade high near 1.1000. But, all the efforts had then succeeded only in posting lower highs, until the support line near 0.9700 failed.

From mid-2013 to the end of 2015, the currency had touched new lows, consistently losing value against the US dollar, without much of a try to regain its lost ground. The bearish pressure abated near 0.7000, allowing the pair to retrace to 0.8000 area in 2018, only to fall again until the coronavirus low happened.

The pandemic low is also very close to the area from which the pair rebounded in 2008. Then lows were around 0.6200 area, and the AUD/USD rallied from there to touch 1.1000 in 2011, gaining momentum after crossing 0.7000.

The Reserve Bank of Australia in August had noted the power in the Australian dollar is in line with the broad economic fundamentals, including the commodity prices and the interest rates. The central bank governor had also ruled out negative interest rates as well as direct monetization of government debts and intervention in the currency market. The RBA stance is favourable for the Australian dollar strength.

The surge in commodity prices is another strong positive for the AUD. Prices of Iron ore - the single largest export item from the country and the top foreign exchange earner - rose to six-year highs, and is expected to continue its rise due to seasonality and demand offtake. China's demand for iron ore is a significant reason for the price rise.

The US dollar weakness is also playing a part in the AUD/USD steep rise. The dollar index, trading the greenback against a basket of currencies, had lost more than 10 Percent from its recent highs. Fed's unconventional policy responses to revive the US economy from the impact of coronavirus are driving down the dollar valuations. The setback from the pandemic in the US was more severe than in Australia. The better situation regarding coronavirus has allowed Australia to adopt a wait-and-watch approach regarding the fiscal and monetary responses, providing more reserve power for the country's currency.

To benefit intelligently from the bullishness in the Australian dollar, investors have to take a look at the most recent price action. AUD/USD is trading around 0.7175 and has immediate resistance ahead at 0.7188, an area near the 200-hour and 100-hour SMAs. A break above this level could be an entry point for a long-term play.

Thank you for reading!

[About The Author]

With more than 13 years trading experience, Stelian Olar is a

highly experienced financial market analyst, responsible for

disseminating the latest fundamental and macro news in the Forex space

and other asset classes.

Stelian is a versatile currency analyst with an in-depth knowledge

of how the markets operate at a micro-level. He combines with success

both the science of technical analysis and the practice of fundamental

analysis to forecast future market trends.

His expertise was shared with several publications in the retail space and works as a contributor for Currency Live.

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