The Australian Dollar bounced back to life during the final trading weeks of Q4, amid broad-based U.S Dollar weakness.

Aussie bulls were inspired further, thanks to improving confidence over the Chinese economy and rising commodity prices which elevated the currency pair higher.

While the Australian Dollars high yielding status is likely to compliment the upside gains, bulls could still face some headwinds down the road.

With markets somewhat downbeat about the Australian Dollar amid soft macro-economic conditions at home, the current optimism around the AUDUSD’s appreciation could be built on weak foundations.

As we head into Q1, monetary policy in the States and at home, the value of the Dollar and commodity prices are likely factors that will impact the Australian Dollar’s performance.

The Reserve Bank of Australia has recently expressed confidence in inflation and unemployment, while dropping hints of raising interest rates.

With concerns still present over low inflation, weak wage growth and elevated debt levels, there is skepticism over the central bank’s ability to take action.

It must be kept in mind that throughout 2017, the RBA has left interest rates unchanged at 1.5% and it could remain the theme this quarter if wage growth and inflation remain subdued.

Looking beyond the Australian economy, investors should pay close attention to geopolitical uncertainty and political risk which have the ability to support the Australian Dollar.

With external factors such as rising commodity prices and Dollar weakness elevating the Aussie, it will be interesting to see how much higher the currency pair trades before bulls lose stamina.

Technical Analysis on AUDUSD

Focusing on the technical picture, the AUDUSD is incredibly bullish on the daily charts as there have been consistently higher highs and higher lows.

While Dollar weakness may be attributed to the AUDUSD’s resurgence, rising commodity prices have also played a leading role.

With the currency pair already breaking above 0.7800, the next level of interest can be found at 0.7890.

If bulls are able to maintain the current upside momentum, then the AUDUSD has the ability to venture towards the 07940 level.

On the weekly charts, prices are likely to remain supported within the weekly bullish channel.

With the MACD in the process of crossing to the upside and 0.7750 acting a dynamic support, Aussie bulls could challenge the 0.8000 psychological resistance level.

Market players will continue to closely watch how prices behave around 0.7834 which still remain a pivotal level on the weekly charts.

A scenario where the AUDUSD sinks back below 0.7834 has the ability to trigger a decline to 0.7700.

If bulls are able to support prices above 0.7384, then the next level of interest for may be found at 0.8000.

Further upside could be on the cards if a monthly close above 0.8000 is achieved, with prices potentially trading towards 0.8300.