Australian Dollar Trends to Persist in 3Q 2022: Top Trading Opportunities

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AUD/USD appeared to be on track to test the yearly low (0.6829) after failing to push above the 50-Week SMA (0.7243), but the exchange rate may consolidate over the near-term as long as it defends the June low (0.6850).

AUD/USD WEEKLY CHART/PENDING SHORT: AUD/USD

Source: TradingView

As a result, AUD/USD may face range bound conditions as the Reserve Bank of Australia (RBA) looks to further normalize monetary policy over the coming months. The exchange rate may attempt to retrace the decline from the June high (0.7283) as Governor Philip Lowe and Co. are “committed to doing what is necessary to ensure that inflation in Australia returns to target over time.”

However, AUD/USD may ultimately track the negative slope in the 50-Week SMA (0.7243) as the Federal Reserve endorses a restrictive policy. The exchange rate may continue to give back the advance from 2020 as Chair Jerome Powell & Co. forecast a steeper path for the Fed Funds rate.

AUD/USD may consolidate over the near-term as it defends the June low (0.6850), but the exchange rate may trade to fresh yearly lows in the second half of 2022 with the FOMC on track to deliver a series of 75bp rate hikes over the coming months.

AUD/JPY WEEKLY CHART/ PENDING LONG: AUD/JPY

Source: TradingView

AUD/JPY consolidates after trading to a fresh yearly high (96.88) in June, and the exchange rate may continue to appreciate in the second half of 2022 as the Bank of Japan (BoJ) sticks to the Quantitative and Qualitative Easing program with Yield Curve Control.

As a result, AUD/JPY may stage further attempts to test the May 2015 high (97.30) as Reserve Bank of Australia (RBA) normalizes monetary policy. A move above 70 in the Relative Strength Index (RSI) is likely to be accompanied by a rise in the exchange rate like the price action seen earlier this year.

However, AUD/JPY may face a larger correction if the RSI diverges with price and fails to push into overbought territory. Failure to defend the June low (91.97) may push the exchange rate towards the May low (87.30) as the bullish momentum abates.

Jul 4, 2022 | DailyFX
David Song, Strategist