The AUD/USD price formed a head and shoulders in March as the US and Australian bond yields rose, and commodity prices started to ease. The pair dropped from 0.800 to 0.7565.
Commodity prices ease
Australia is a richly endowed country with vast natural resources like copper, iron ore, and nickel. It sells most of these commodities to China, the biggest consumer in the world. Therefore, the Australian dollar tends to do well when commodity prices rise. Indeed, its recent rally is partly because of the surge.
However, March was a relatively difficult month for commodity prices as the dollar rose and worries of global growth resumed. The US commodity index dropped by more than 4% in March, with the price of crude oil falling by more than 10% from its year-to-date high. Iron ore and copper prices also retreated.
The upward trend will likely resume in April as investors continue betting on the supercycle. Also, they will likely watch the negotiations in the US Congress, where Joe Biden is expected to unleash a record $3 trillion infrastructure project. The package will include roads and bridges and other projects, which could be positive for commodities.
Most importantly, the economy will likely keep doing well as more countries continue their vaccination process. This could be a positive thing for the AUD/USD price.
Australian and US bond market
The AUD/USD also declined because of the performance of the Australian and US bond market. In Australia, government bonds soared as investors continued to bet on high inflation. Furthermore, the country’s house prices have surged at the fastest pace in 17 years.
The prices rose by 2.1% in February, according to data by CoreLogic. This performance is mostly because of the low mortgage rates and the recovering economy. Further, in most places, prices were relatively depressed before the pandemic.
Meanwhile, in the United States, inflation has been steady while expectations have kept rising. The five-year breakeven point has risen to the highest level since 2008, which is a sign that investors expect prices to rise to 2.5% by the end of the year.
In April, the market will be focusing on the US bond yields and the performance of inflation now that the country has implemented the $1.9 trillion stimulus package. The market will also watch statements by the Federal Reserve and the Reserve Bank of Australia (RBA).
The RBA is expected to leave interest rates unchanged when it concludes its meeting on April 6. It will also point to a sustained easing in its bid to continue supporting the economy. The Fed, on the other hand, will also leave interest rates and QE unchanged when it meets on April 28.
AUD/USD technical forecast
A look at the daily chart shows that the AUD/USD pair has formed a bearish signal. A head and shoulders pattern, which is usually a bearish sign, has emerged. Its neckline is at 0.7660. The pair has also moved to the lower line of the Bollinger Bands.
The Relative Strength Index (RSI) has also continued to decline and is approaching its oversold level. The price is between the pivot point and the first support. Therefore, because of the head and shoulders pattern, the pair may keep falling, with the next target being at the third support at 0.7650.
