The Australian Dollar (AUD) is likely to stay between 0.6485 and 0.6525 for now, but its long-term outlook isn’t looking good. Analysts from UOB Group believe the recent low of 0.6445 won’t be reached any time soon. Last Tuesday, the AUD dropped sharply to 0.6459 before bouncing back up to 0.6513, reducing its downward momentum for the moment. In the short term, the AUD is expected to stabilize within this range. Although the medium-term outlook has shifted negative, significant drops are not anticipated right away. Analysts point out that if the AUD doesn’t fall below a key resistance level of 0.6540, there’s still a possibility it could decline back to 0.6445. Keeping below the 0.6540 mark is crucial for this outlook.

Consolidation Phase

Following the rebound from 0.6459 earlier this week, we believe the AUD will consolidate for now. Traders should expect the AUD/USD pair to stay within the 0.6485 to 0.6525 range in the next few days. This sideways movement suggests that immediate downward momentum has slowed, offering a chance to plan the next steps. For the next one to three weeks, we maintain a negative outlook as long as the 0.6540 resistance level holds firm. This level serves as a ceiling, and traders might consider selling out-of-the-money call options with strike prices above 0.6540 to earn premium during this consolidation phase. The key downside target remains last month’s low around 0.6445. This bearish stance is supported by Australia’s recent economic data. In late October 2023, the Q3 Consumer Price Index came in lower than expected at 3.8%, reducing the pressure on the Reserve Bank of Australia to raise interest rates further. This shift in sentiment contrasts with the more optimistic outlook from a few months ago, making it a tougher environment for the AUD. Adding to the challenges, iron ore prices, an essential Australian export, have fallen below $110 per tonne. This decline is related to new data from China showing a slowdown in construction projects for the fourth quarter. We view this as a significant challenge for the currency that will likely not change quickly.

US Economic Reports Impact

On the other side, the U.S. Federal Reserve kept its interest rate unchanged in its meeting on November 5th, but its statement maintained a firm tone. The Fed stressed that its efforts against inflation are ongoing, which supports the U.S. dollar. This difference in approach between a cautious Reserve Bank of Australia and a proactive Fed should continue to weigh on the AUD/USD pair. Traders should prepare for tomorrow’s U.S. Non-Farm Payrolls report for October. A strong jobs number could back up the Fed’s position and might lead to a break in the current consolidation, pushing the AUD/USD down toward the 0.6445 target. With volatility expected, using protective put options may be a wise way to manage risk around this event. We remember a similar period of tight trading in late 2023 when mixed signals from global central banks caused erratic price movements before a clear trend emerged. This past experience suggests that patience is key until a decisive move happens. Setting positions near the expected range edges provides a disciplined strategy. Create your live VT Markets account and start trading now.

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