AUD USD looking better than it has in over a year

Earlier today, we noted that the Australian dollar was the only major currency that rose against the US dollar last month (see “November recap: USD reigns, but upstart Aussie takes the cake” for more), so we figured we’d take a closer look at the pair’s potentially significant long-term breakout.

My colleague Fawad Razaqzada covered the fundamental situation Down Under earlier, noting that “the RBA kept interest rates and forward guidance effectively unchanged from the previous meeting. We also had some stronger Australian data as building approvals unexpectedly rose 3.9% in October. Meanwhile the latest manufacturing and non-manufacturing PMI data out of China were mixed and this helped to alleviate concerns about the health of the world’s second largest economy, which also happens to be Australia’s largest trading partner.” AUD/USD bulls will look for more optimistic news in the coming Asian session, where RBA Governor Stevens will give a speech at the Australia-Israel Chamber of Commerce breakfast in Perth (23:30 GMT) followed an hour later by the release of Q3 AU GDP (00:30), which is expected to print at 0.7% q/q.

Across the Pacific, US economic data has quietly been deteriorating ahead of the Federal Reserve’s highly-anticipated meeting in two weeks. In the last week alone, Core PCE, Personal Spending, New Home Sales, Chicago PMI, Pending Home Sales, and this morning’s ISM Manufacturing PMI report all missed expectations, counter-balanced only by decent Durable Goods Orders and Initial Unemployment Claims reports. In fact, today’s ISM Manufacturing PMI figure came in lower than it has at any point since June 2009, in the depths of the Great Financial Crisis. While this all sounds a bit alarming, the Federal Reserve seems determined to raise interest rates off the zero lower-bound, and in our view, only a sub-150k NFP report on Friday will throw a wrench in those plans.

Technical view: AUD/USD

The weekly AUD/USD chart (below) looks stronger than it has at any point in the last year. As of writing, the rates are breaking above a 14-month bearish trend line near .7200 and approaching a three-month high around the .7400 handle. Meanwhile, the weekly RSI and MACD indicators have both turned higher to hit their highest levels in over a year.

Given the Australian dollar’s improving fundamental and technical pictures, more strength is favored in the near-term, with bulls potentially looking to target the .7400 handle followed by the 23.6% Fibonacci retracement of the entire 2014-2015 drop at .7520. That said, it may take a disappointing NFP report and subsequent decision to hold off on raising interest rates by the Federal Reserve to see AUD/USD rise meaningfully above that level this year.