• AUDUSD looks to be under-priced against Commodity Price Index
  • Technical analysis could give an advantage for bulls on AUDUSD
  • Speculative positioning suggests cautiousness in terms of further rises in AUD

The price action seen in the Australian dollar has been fairly interesting of late. The currency has thrived, however those gains are much less impressive weighing them against what we’ve seen in terms of export prices of key Australian commodities.

link do file download linkThe XTB Daily Commodity Price Index has skyrocketed over the course of recent weeks implying the stronger Australian dollar. Source: Bloomberg, XTB Research

The XTB Daily Commodity Price Index has skyrocketed over the course of recent weeks implying the AUDUSD to be closer to 0.9 rather than 0.8. A massive increase of the commodity index was caused mainly on the back of a bull market seen across industrial metals and cocking coal. Rises have been quick and hectic which suggests that another bubble could lurk just around the corner. If industrial metals’ prices slump, it could be a massive drag on the AUD but this is not a thread to write about this article.

When it comes to macroeconomic data coming from Australia this week, it could deliver quite much volatility. First and foremost, there will be a Q2 GDP report on Wednesday being preceded by the RBA monetary policy decision. As far as the latter is concerned, the Reserve Bank of Australia should be cognizant that the latest rises of key commodity prices could be transitory, hence it could dampen market expectations as for a rate increase. Having said that, this central bank likes to surprise markets from time to time, thus if it delivers an optimistic statement, it might cause the AUDUSD will catch up the commodity index. Moving on to the GDP report, it could be solid one looking through quarterly reports on construction and capital expenditure (CAPEX).

link do file download linkThe AUDUSD seems to be poised to keep up rising going forward as the pair has been able to maintain above 0.7875. Source: xStation5

A technical view could be encouraging for AUD bulls. The pair has managed to hold above a local support area placed at around 0.7875, the level has been underpinned by a 23.6% retracement of a recent leg higher. Having said that, if the RBA doesn’t voice concerns about strength of the AUD, it could take the pair higher towards 0.8040. After a potential breakout of that level, 0.8160 could be another target to aim at.

link do file download linkThe net long speculative positioning on the AUD yet increased in the week ended August 29. Source: Bloomberg

Even though both commodity prices and a technical analysis could prop up further increases on the AUDUSD, one needs to notice that risks related to this week events could be tilted to the downside looking at the speculative positioning. In short, rises could be harder to achieve as opposed to declines.