AUD/USD fails to sustain rally off lows

<p>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 […]</p>

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.

AUD/USD Daily Chart

 

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.

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.