AUD USD fails to sustain rally off lows

AUD/USD (daily chart shown below) failed on Wednesday to sustain the previous day’s rally from multi-year lows. Tuesday’s surge was fueled in part by comments from the Reserve Bank of Australia (RBA) omitting its previous call for a lower exchange rate against the US dollar and stating that the Australian dollar was “adjusting to significant declines in key commodity prices.”

Prior to those comments this week, the RBA had deemed a depreciation of the Aussie as both likely and necessary, given the plunge in commodity prices.

Also contributing to the Australian dollar’s climb earlier in the week were two data releases – trade balance and retail sales – that both turned out better than expected. Scheduled for Thursday morning in Australia are the employment change and unemployment rate data, which could also prompt moves in the Aussie.

While AUD/USD was able to rally significantly on Tuesday, however, the move was not due to much more than a short squeeze after a long period of decline, and is unlikely to be sustainable in the short-term. For the time being, the current focus for the currency pair continues to be on US dollar strength, as well as the related depreciation in key commodities like gold.

With the US dollar continuing to show robust appreciation in anticipation of an impending rate hike and gold wallowing near its five year lows, any positive economic news coming out of Australia should only have a limited upside effect.

For the near-term, that upside should likely be capped by strong resistance around the 0.7500 psychological level as well as the currently descending 50-day moving average. Only a break above these resistance factors would change the current directional bias towards a potential rebound for the currency pair.

To the downside, any sustained move back below 0.7300 could pressure AUD/USD towards a re-test of the new six-year low at 0.7233 that was hit just last week. This would place the 0.7000 psychological support target back in view, confirming a continuation of the long-term downtrend.