October 14, 2021 13:48:59

The aussie looked down and out late last month. The China-proxy was embroiled in the Evergrande story and China’s stressed property market while commodity markets were stalling with risk markets subdued. This fairly depressing outlook had seen investors (asset managers and leveraged funds) build short positions to levels not seen in over 18 months.

Fast forward a few weeks and it would appear that the short squeeze is in play. The large short overhang has helped AUD move up above 0.72 and through the descending trendline from the May highs. Rampant commodities are also boosting the currency, while the vaccination programme has picked up to such an extent that Australia is on track to have one of the highest vaccination rates.

That said, the latest employment report was mixed with the number of employed people falling again and a modest uptick in the unemployment rate. This means the RBA will remain dovish for now, though currently the positive risk mood is trumping all else.

AUD/USD heads to September high at 0.7478

With trendline resistance now turned support at 0.7327, the aussie is currently trading around the 100-day SMA at 0.7415. The MACD and RSI all point to higher prices in the near term. Bulls have their eyes on the swing high from a few weeks ago at 0.7478. Beyond here is the 50% retrace level of the May to August move at 0.7498.

Last night’s soft data didn’t hold prices up and the still large net speculative short positioning points to ongoing gains. The 200-day SMA is at 0.7571 for reference. Initial support resides at 0.7405, the 38.2% Fib retrace level.