AUD USD maintains relative weakness despite US dollar plunge

While the US dollar’s plunge on Wednesday saw the greenback fall precipitously against most other major currencies, AUD/USD remained relatively unmoved as the Australian dollar also remained weak on a continuing slump in commodity prices.

Thus far, this week has seen a sharp pullback for AUD/USD that broke the prior short-term uptrend, which had been in place since early November. That uptrend was a part of a generally bullish channel that originated from September’s six-year low around 0.6900. Despite this bullish channel, however, the currency pair continues to trade within a strong, long-term downtrend with major resistance around the key 200-day moving average.

Before this week’s tumble, AUD/USD had been rising up to approach this 200-day moving average as the Reserve Bank of Australia (RBA) recently opted to keep interest rates on hold (instead of cutting rates) in light of the fact that Australian exports and economic conditions have improved in the past several months. This provided a boost for the Australian dollar, albeit short-lived.

With weakness in commodities persisting, the Australian dollar continues to be pressured. Combine this with expected support for the US dollar ahead of next week’s Fed decision, which is broadly anticipated to result in the first US interest rate hike in nearly a decade, the longer-term directional bias for AUD/USD remains to the downside.

Upcoming on Thursday morning in Australia is the Australian Employment Change and Unemployment Rate data for November. These data points could result in increased volatility for AUD/USD.

Having just reached back down to the key 0.7200 support level as well as the 50-day moving average, the currency pair is at a critical juncture. Any sustained follow-through below the 0.7200 level could lead to a return towards the 0.7000 psychological support level, with a further downside target around the noted 0.6900-area multi-year low. To the upside, a bounce from the current levels should continue to be limited to the upside by 0.7385 resistance as well as the noted 200-day moving average.