The intoxicating combination of rising commodity prices, Dollar weakness, and growing optimism over the Chinese economy stimulated appetite for the Australian Dollar at the start of 2018.

But Aussie bulls eventually ran out of steam as the quarter progressed thanks to the widening interest rate differential between the Fed and Reserve Bank of Australia.

Although the Australian Dollar boasts a higher yielding status, the yield premium is likely to decrease if the RBA remains reluctant to raise interest rates from the record low of 1.5%.

While a selection of external risks, such as Dollar volatility and commodity prices, could continue to impact the Aussie, bulls may find support at home from the nation’s improving macroeconomic landscape.

As we head into the second trading quarter of 2018, the RBA’s monetary policy stance, U.S. interest rates and the ongoing political tussle between the U.S. and China will impact the Aussie’s performance.

It should be kept in mind that the RBA has held the Australian cash rate steady at a record low of 1.5% for 18 consecutive meetings.

With wage growth remaining stubbornly low and inflation still below the central bank’s 2%-3% target, markets do not expect a rate hike until early 2019.

The economic outlook remains somewhat encouraging as improving business and consumer confidence points to continued employment.

While rising employment in Australia could signal faster wage growth and support expectations of an RBA rate hike, underemployment remains a headache for policymakers.

Taking a peek outside of Australia’s economy, investors should play close attention to geopolitical uncertainty, stock market volatility, and U.S. political risk which will indirectly impact the Aussie.

As Australia is a major producer of Gold and other precious metals, the Aussie is seen as a commodity currency.

If escalating trade tensions between the United States and China fuel risk aversion and boost Gold prices, the Australian Dollar could heavily benefit since it remains positively correlated to the yellow metal.

Technical Analysis on AUDUSD

In regards to the technical picture, the AUDUSD is steadily bearish on the daily charts as there have been consistently lower lows and lowers highs.

There is a suspicion that Aussie weakness may be linked to fading market expectations of the RBA raising interest rates this year.

With the AUDUSD already conquering the psychological 0.7750 support level, the next levels of interest may be found at 0.7580 and 0.7500.

A solid weekly close below 0.7500 is likely to trigger a further selloff lower towards 0.7300.

While the trajectory continues to point to the downside on the daily and weekly charts, the monthly suggests that bulls still have a chance to bounce back.

It should be kept in mind that the AUDUSD remains in a monthly bullish channel while the MACD on the monthly charts is in the process of crossing to the upside.

A solid daily close back above the 0.7750 level may signal the resumption of the monthly uptrend, with 0.7900 and 0.8150 acting as points of interest.