AUD USD stalls after rising to critical resistance

AUD/USD has stalled at a critical resistance juncture around the 0.7200 level after having risen for the past week and a half from near multi-year lows.

Early in the week, the Reserve Bank of Australia kept interest rates unchanged as expected, but also issued a rather neutral statement devoid of any indication regarding a potential future rate cut. The absence of this indication gave a boost to the Australian dollar that was further supported by tentatively rebounding gold and commodity prices within the past week.

The recent rise of AUD/USD has just hit a potential technical barrier, however, as the currency pair has not closed above the key 0.7200 level since late August. The last time an attempt was made was in mid-September, when AUD/USD spiked above that level and the 50-day moving average on two consecutive days, but was rebuffed on both days by strong resistance. Most recently, Wednesday’s attempt also ended up in a daily close below 0.7200.

From a longer-term perspective, AUD/USD continues to trade within a sharp downtrend going back at least to the 0.9500-area high in July of last year. The latest culmination of this downtrend was the six-year low of 0.6903 that was just established a month ago in early September. Technically, that low combined with last week’s low of 0.6935 may have formed a rough double-bottoming pattern, but price action has yet to break out above the mid-September peak.

While gold has rallied off its recent lows as of late, this rally has begun to show signs of fatigue. If gold cannot muster the strength to extend its rally, AUD/USD could potentially be dragged down with it.

Another factor that could help decide the short-term direction of AUD/USD is Thursday’s FOMC meeting minutes from the US. This information should provide a bit more clarity as to the conditions that influenced the Fed to keep rates unchanged in September, and how close the Fed may be to raising interest rates in the future. As a result of these minutes, if the market continues to expect a rate hike delay into 2016, the US dollar could fall further, potentially pushing AUD/USD above 0.7200. The opposite should hold true if the market reverts back to expecting a rate hike by the end of this year.

In the event that the 0.7200 resistance level holds and AUD/USD turns back to the downside, the major downside target remains around the 0.7000 psychological level. To the upside, on any short-term break and daily close above 0.7200, a further resistance barrier resides around the 0.7300 level.