AUD/USD rally at risk of pullback as US dollar bounces

Monday’s US dollar bounce off last week’s multi-year lows prompted several dollar-based currency pairs to buck their trends, at least on a short-term basis. AUD/USD was no exception, as the pair pulled back further from last week’s failed test of the key 0.8100 level.

US dollar weakness has fueled much of AUD/USD’s sharp rise since mid-year. Last week, this US dollar weakness combined with a boost for the Australian dollar after the Reserve Bank of Australia’s policy statement to prompt a further rise for AUD/USD. While the RBA kept its key interest rate unchanged at 1.50%, as expected, the central bank's statement highlighted improving conditions in the Australian and global economies, possibly signaling future potential policy tightening.

Amid a rather busy week for global economic data this week, the Australian jobs report will be released on Thursday. August jobs are expected to have increased by around 19,200 and the unemployment rate is expected to have remained steady at 5.6%. On the US side, this week will also feature the US Producer Price Index for August (+0.3% expected) on Wednesday and the Consumer Price Index for August (+0.3% expected) on Thursday, as well as retail sales data for August (+0.1% expected) on Friday.

AUD/USD’s failed test of 0.8100-area resistance late last week was denoted by a clear “shooting star” candlestick pattern (otherwise known as a bearish pin bar) that suggests a possible failure to continue higher and a potentially impending bearish reversal, or at least a pullback. Monday’s move lower on the US dollar rebound provides further strength to this chart pattern. In the event of a continued US dollar recovery amid this week’s key economic data, AUD/USD is at risk of a deeper pullback off overbought levels. On any sustained breakdown below the 0.8000 psychological level, the next major downside targets are at the 0.7875 and 0.7800 support levels.

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