Of all the major currencies, the Australian Dollar is the one with the highest interest rates. By extension, this makes it a popular carry trade, as you can borrow an asset like the Swiss Franc (where interest rates are 0%) and invest them in Australian Bonds. This then strengthens the target currency like the AUD even more as more people buy the currency. This works through the following flow of events:
High Relative Interest Rates (RBA)
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Global Money Borrows CHF / Buys AUD (Carry Trade Demand)
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Massive Buying Pressure in Spot FX Market
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AUD Appreciates against CHF & Low-Yield Currencies
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Higher Yield + Rising Exchange Rate = Attracts Even More Inflow
Partially because of these factors, the Australian Dollar is at one of its highest points in valuation throughout the past years.
AUD/USD on the Daily Timeframe
Combining that data with technicals, as the pair is trying to recover from a reversal since its May top, we see an asset that could very well break out to new highs, but at the same time is at risk of creating a topping pattern.
AUD/USD on the Daily Timeframe
Those well-versed in candlestick patterns might have already noticed the glaring issue of a major head and shoulders pattern visible on the daily timeframe. In theory, this gives us a bearish bias, although it’s important to note the pattern is not complete yet. In practice, however, big head and shoulder patterns on the daily timeframe tend to include a lot of fakeouts in either direction, as almost all market participants are aware of the pattern, and both sides of the auction try to push price in either direction.