RBA decision still the biggest risk factor but Aussie Dollar could push higher

AUD loves the range bound trade on occasion, and although this week we have seen it underperform against other pairs during the Asian time-zone, its stickiness to the 0.78-0.79 area has been very clear.

The sudden reversal we saw in the US Dollar post FOMC surprised many traders. It highlighted that this might not be a one-way street for the much-bought Greenback. A considerable amount of positions were flushed out of the system, and for many traders that meant a clean slate on taking a view on AUD/USD.

The biggest event risk on the calendar for this month will once again be the RBA rate decision. With the last two meetings being such a close call, there is no doubt we will see more volatility and more speculative positioning pre-event. This aside, iron ore futures continue to fall, making it harder for the commodity currency to look like an attractive buy.

Despite this, I remain fairly neutral to bullish the Australian Dollar in the short term; as positions continue to squeeze and the technical traders play key levels. All will depend though on Glenn Stevens and the rate call. My feeling is that it will be pushed out to May, when they have a clearer picture on how the first cut is filtering through the economy, thus squeezing this move even higher.

Short-term:

Support 0.7790/ 0.7755/ 0.7671

Resistance 0.7875/ 0.7921/ 0.8005

Longer-term however, the much talked about divergence in central banks will be too big a force to mess with. For that reason, many analysts have keep end of year forecasts for the AUD/USD cross around 0.72-0.73.