AUD/USD Bullish Price Series Emerges After Defending 2021 Low

AUD/USD trades back above the 50-Day SMA (0.7737) as it extends the rebound from earlier this week, and the exchange rate may stay afloat ahead of the Federal Reserve interest rate decision on March 17 as the rebound coincides with the recent pullback in longer-dated US Treasury yields.

It remains to be seen if the Federal Open Market Committee (FOMC) will act at the quarterly meeting as Fed officials are slated to update the Summary of Economic Projections (SEP), but it seems as though the central bank is in no rush to alter the course for monetary policy even as the Reserve Bank of Australia (RBA) acknowledges that “changes in bond yields globally have been associated with volatility in some other asset prices, including foreign exchange rates.”

In turn, the FOMC may continue to utilize its non-standard tools in 2021 as the central bank extends the Paycheck Protection Program Liquidity Facilityby three months to June 30, and the committee may keep the door open to further support the US economy as Chairman Jerome Powell warns that “it’s not at all likely that we’d reach maximum employment this year.”

In turn, the US Dollar may continue to reflect an inverse relationship with investor confidence as long as the FOMC stays on track to “increase our holdings of Treasury securities by at least $80 billion per month and of agency mortgage-backed securities by at least $40 billion per month,” and it looks as though the crowding behavior from 2020 has resurfaced as traders flip net-short AUD/USD.

Image of IG Client Sentiment for AUD/USD rate

The IG Client Sentiment Report shows 48.90% of traders are currently net-long AUD/USD, with the ratio of traders short to long-standing at 1.04 to 1.

The number of traders net-long is 9.31% lower than yesterday and 17.22% lower from last week, while the number of traders net-short is 8.78% higher than yesterday and 2.73% lower from last week. As a result, open interest is 10.40% lower from the previous week, but the crowding behavior from 2020 appears to have resurfaced as 52.50% of traders were net-long AUD/USD earlier this week.

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