Short: AUD/USD

Range Trade: AUD/JPY

AUD/USD Weekly Chart

Source: Trading View

AUD/USD slipped to a fresh 2021 low (0.6993) after failing to push above the 50-Week Moving Average (0.7511) in October, and the recent rebound in the exchange rate may turn out to be a correction in the broader trend as the Federal Reserve prepares to implement higher interest rates in 2022, while the Reserve Bank of Australia (RBA) appears to be in no rush to normalize monetary policy.

The diverging paths between the RBA and Federal Open Market Committee (FOMC) casts a bearish outlook for AUD/USD as Governor Philip Lowe and Co. expect “underlying inflation to reach 2½ per cent over 2023,” and it seems as though the Board will stick to a wait-and-see approach over the coming months the central bank “will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range.

As a result, AUD/USD may continue to depreciate over the coming months as the 50-Week MA develops a negative slope, and lack of momentum to trade back above the former-support zone around 0.7130 (61.8% retracement) to 0.7180 (61.8% retracement) should keep the downward trend intact, with a break of the November 2020 low (0.6991) bringing the 0.6970 (23.6% expansion) area on the radar. Next area of interest comes in around 0.6760 (38.2% expansion) to 0.6820 (50% retracement), with a break of the June 2020 low (0.6648) opening up the 0.6600 (50% expansion) handle.

AUD/JPY Weekly Chart

Source: Trading View

Unlike AUD/USD, AUD/JPY traded to a fresh yearly high (86.25) in the second-half of 2021 as it cleared the May high (85.80), and the failed attempt to test the August low (77.89) may keep the exchange rate within a defined range as it attempts to push back above the 50-Week Moving Average (82.40).

The broader outlook for AUD/JPY remains constructive as the 50-Week MA retains the positive slope from earlier this year, with developments in the Relative Strength Index (RSI) highlighting a similar dynamic as the oscillator breaks out of the downward trend carried over from May.

With that said, AUD/JPY may continue to retrace the decline from the October high (86.25) as it reveres ahead of the August low (77.89), but need a break/close above the 82.40 (50% expansion) area to bring the 84.60 (61.8% expansion) region on the radar. Next area of interest comes in around 86.10 (38.2% retracement) to 86.30 (78.6% expansion), which lines up with the October high (86.25), followed by the Fibonacci overlap around 87.70 (61.8% expansion) to 88.60 (50% expansion).