March 3, 2022 14:22:40

Perhaps surprisingly, the top performing major currency this year has been AUD. This has taken place despite a major selloff in global stocks, a still relatively dovish RBA and general broad dollar strength.

But it is the very strong bid in Australia’s key commodity export prices which is really boosting the aussie. This includes a mix of fossil fuels and precious and industrial metals. As we said yesterday, Australia is the world’s leading LNG exporter and one of the world’s top wheat exporters. The commodity rally has also spilled over into iron ore, where prices are getting back near their highs after a sharp selloff.

However, the RBA defied any expectations at its recent meeting that it may turn more hawkish. The focus remains on wage growth even though it acknowledged increasing inflationary pressures. On the flip side, a hawkish Fed has kept the dollar reasonably well supported. Chair Powell’s testimony signalled a 25bp March rate hike with the chance of more aggressive hikes if inflation comes in higher. Tomorrow’s NFP is expected to see robust jobs growth continue.

AUD/USD heads into near-term resistance zone

The major bottomed out in early December and late January around 0.70. This looks like it could be a “double bottom” pattern, which is a major reversal indicator. Prices moved off the lows during last month. We’ve started March in similar vein, pushing above the neckline of the pattern.

This level is close to the halfway mark of the October to January high/low move that sits at 0.7262. A rough upside measured move target takes prices three hundred pips higher towards 0.76.

In the meantime, buyers have hit an area of resistance. This includes the 200-day SMA at 0.7323, the previous year-to-date high from January at 0.7314 and the next Fb level (61.8%) at 0.7332. Above here, buyers will target 0.7374 and 0.7468. Support is 0.7262 and the 100-day SMA at 0.7234.