AUD – The Australian dollar is consolidating, awaiting a breakout; the strategy is to buy on dips

The market anticipates that the Reserve Bank of Australia (RBA) may further tighten policy in the coming months after its rate hike in early February. Current market pricing indicates a roughly 70% probability of a 25 basis point rate hike in May, with a June hike largely priced in. The focus will now shift to Wednesday's release of Australia's January CPI data, which could reinforce expectations of further rate hikes. On the same day, RBA Governor Bullock will speak on inflation and the policy outlook; the market will closely monitor his remarks to confirm the policy path.

Technically, the Australian dollar successfully broke through a long-term downtrend line that had been suppressing the exchange rate for over a decade at the end of last year, a highly significant technical breakout signal. Since this key resistance level turned into support, the Australian dollar has shown resilience, and the medium- to long-term technical outlook has clearly strengthened. The main support levels are currently set at 0.6980 and 0.6880. The former represents the first pullback support after the breakout of the previous dense trading zone and trendline, while the latter is the convergence point of the 50-day moving average and the medium-term upward trendline, expected to provide strong technical support for the future. Assuming the breakout is confirmed, the recommended strategy is to buy on dips and hold for the medium to long term. If the upward trend continues, the medium-term target for this round could be 0.79 or even higher, challenging the next important psychological level and the top of the long-term sideways trading range. Furthermore, the exchange rate has repeatedly encountered resistance at the 0.71 level recently, including Monday's high of only 0.7113. The next level of resistance is seen at the February 2023 high of 0.7158 to 0.7280, with stronger resistance expected at 0.74.

Forecast range:
Resistance: 0.7100 – 0.7158* – 0.7280 – 0.7400
Support: 0.6980 - 0.6880 – 0.6760 – 0.6700

Key Focus:
Wednesday
Australia January CPI (08:30)

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