AUD/USD: Australian dollar rallies to 3-session highs

The Australian dollar (AUD/USD) continued its bullish form on Monday, reaching a three-session high, buoyed by optimistic risk sentiment and robust commodity performance. Investors holding short positions on the Australian dollar might find their strategies under pressure, with the currency seemingly resilient to downside pressures.

One of the key factors bolstering the Australian dollar is the surge in commodity prices, a sector the currency is closely correlated with. Dalian iron-ore futures climbed above the downtrend line established after 2022’s yearly high, reaching a seven-month peak. Copper futures (HGv1) also rebounded, recovering after briefly dipping below structural support near $3.50.

Additionally, rising yields have contributed to the AUD’s rally. A substantial increase in Australian retail sales exceeded expectations, propelling three-year government bond yields to a 12-year high. This boost in yields has further supported the Australian dollar’s upward momentum.

Investor positioning remains a crucial element driving AUD/USD gains. Recent data from the Commodity Futures Trading Commission (CFTC) revealed a slight increase in net-short Australian dollar positions, which are currently hovering near record levels. Surprisingly, despite the surge in short positions since August, the AUD/USD pair has shown no signs of weakness. If the Australian dollar continues its upward trajectory, reductions in short positions could act as a tailwind, further bolstering the currency pair.

Technical indicators underscore the potential for further upside in AUD/USD. The daily Relative Strength Index (RSI) is on the rise, indicating strengthening buying momentum. Furthermore, a bullish hammer candle was formed on the monthly chart for October, suggesting positive sentiment among traders.

Risks ahead for AUD/USD will be China’s October National Bureau of Statistics (NBS) and Caixin manufacturing Purchasing Managers’ Index (PMI) releases, as well as the upcoming Federal Reserve meeting.