AUD/USD : January Outlook

(Thu, 14 Jan 2021). AUD/USD preserve the opening range for January as it breaks out of the series of lower highs and lows from the previous week, and key market trends may keep the exchange rate afloat as the Reserve Bank of Australia (RBA) acknowledges that “the improvement in risk sentiment has also been associated with a depreciation of the US dollar and an appreciation of the Australian dollar.”

AUD/USD RATE OUTLOOK HINGES ON BREAK OF JANUARY OPENING RANGE

AUD/USD consolidates after taking out the April 2018 high (0.7813), but the pullback from the monthly high (0.7820) triggered a textbook sell signal in the Relative Strength Index (RSI), with the oscillator starting to deviate with price as the indicator no longer tracks the upward trend established in November.

The divergence in the RSI may become increasingly transparent as a bearish formation takes shape, but AUD/USD appears to have reversed course ahead of the monthly low (0.7642) amid the recent recovery in global equity prices. In turn, swings in risk appetite may continue sway AUD/USD ahead of the next Federal Reserve interest rate decision on January 27 as the US Dollar still reflects an inverse relationship with investor confidence, and the tilt in retail sentiment also looks poised to persist as traders have been net-short the pair since November.

With that said, the US Dollar may continue to reflect an inverse relationship with investor confidence as the Federal Open Market Committee (FOMC) remains on track to increase its “holdings of Treasury securities by at least $80 billion per month and of agency mortgage-backed securities by at least $40 billion per month,” and the exchange rate may stage another attempt to test the March 2018 high (0.7916) as long as it preserves the opening range for January.

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