AUD/USD broke above the roof of the annual range 0.7166 – 0.7740, and touched levels last seen on April 17, 2016. But back then, the pair showed the correction lower right after it touched the mentioned levels. Will it be the same this time? At first we need to look at the triggers behind the recent moves.
Last week, stronger than expected consumer inflation expectations coupled with broad-based USD weakness drove gains in the Australian dollar. However, today, USD keeps falling against major colleagues, except for AUD.
Fundamentally, the Australian economy is very dependent on exports with key trading partners. That’s why sharp appreciation in the AUD may hurt the economy, as produced goods and services may become less competitive in the world market.
And the Reserve Bank of Australia generally does not like that. The bank usually takes every opportunity to slow down the appreciation. So keep your eye on the three Australian policymakers scheduled to speak this week. If we hear any dovish bias in their comments, AUD/USD's nearest target is at 0.7740.
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