AUSTRALIAN DOLLAR OUTLOOK: AUD/USD PRICE ACTION FACES HEADWINDS AS RISK REVERSALS STALL AMID CHINA TENSION
- AUD/USD[1] advance continues with spot prices trading 4% above its monthly low
- Australian Dollar[2] risk reversals start to turn lower amid escalating China tension
- AUD/USD[3] might struggle to extend higher as Aussie outlook deteriorates
Australian Dollar bulls have kept the Aussie bid since the sentiment-linked currency bottomed out roughly two months ago. Spot AUD/USD price action has surged nearly 20% off its March 28 swing low as trader appetite for risk continues to recover from the recent coronavirus panic. Relentless strength in the Australian Dollar over the last several trading sessions, which looks largely fueled by coronavirus vaccine hope[4], has essentially erased the 1,000-pip plunge against its US Dollar[5] peer notched earlier this year.
AUD/USD PRICE CHART: DAILY TIME FRAME (DEC 2019 TO MAY 2020)
A daunting confluence of technical resistance[6] near the 0.6700 handle presents a notable obstacle for spot AUD/USD price action, however. This potential area of opposition is underpinned by the 200-day moving average[7] and 76.4% Fibonacci retracement[8] of its year-to-date trading range.
Also worth mentioning, the relative strength index[9] is perched slightly below a reading of 70 and ‘overbought’ territory, which could suggest Australian Dollar risk is tilted to the downside. Nevertheless, as steadfast market sentiment crushes volatility[10], it is possible that the positively-sloped support trendline[11] provides a degree of buoyancy to AUD/USD prices.
AUSTRALIAN DOLLAR RISK REVERSALS SUGGEST WANING UPSIDE POTENTIAL
That said, Australian Dollar risk reversals indicate that the bullish bias recently enjoyed by AUD/USD could soon unwind and pressure spot
