AUD/USD rises to critical resistance on US dollar pullback, gold surge
James Chen September 16, 2015 10:49 PM
<p>AUD/USD (daily chart shown below) rose to critical resistance around the 0.7200 handle on Wednesday, primarily due to a weakened US dollar that was shaken […]</p>
AUD/USD (daily chart shown below) rose to critical resistance around the 0.7200 handle on Wednesday, primarily due to a weakened US dollar that was shaken by August’s unexpected drop in US inflation. Gold also surged on this inflation data, helping to further support the positively-correlated Australian dollar.
Earlier, the Reserve Bank of Australia (RBA) had released the minutes of its last monetary policy meeting. As expected, the RBA kept rates unchanged, but also took on somewhat of a dovish tone as it asserted a relatively negative outlook for the Australian economy. While this tone prompted a modest initial dip for the Australian dollar, AUD/USD was quick to recover on the weakness in the US inflation report.
Having reached up towards major resistance at 0.7200, AUD/USD is at a critical technical juncture. The past week-and-a-half have seen the currency pair rise from its new six-year low of 0.6903 in early September up to its current height just short of 0.7200. This rebound has also brought AUD/USD up to approach its key 50-day moving average, which has not been significantly breached to the upside since the substantial rally that began in mid-April.
The 0.7200 level has served as a key support/resistance level for the past few months, as it was a support target prior to its breakdown in late August, after which it has held strong thus far as resistance.
While the longer-term trend for AUD/USD continues to be strongly to the downside in light of continued commodity weakness and the likely future rate hike prospects for the US dollar, the short-term fate of the currency pair will primarily be driven by this week’s Fed decision on US interest rates.
In the event that the Fed postpones a September rate hike, AUD/USD will likely rally significantly, breaking above the 50-day moving average with an initial upside target potentially around the 0.7500 resistance level. In contrast, any decision to raise rates on Thursday should lead to an AUD/USD retreat back down towards the 0.7000 level, with a further, longer-term downside objective around 0.6800 support.
StoneX Financial Ltd (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.