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AUD/USD: Between a Rock and a Hard Place

AUD/USD: Between a Rock and a Hard Place

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AUD/USD is stalling on Friday after an impressive run of form saw the Aussie gain almost 3.50 percent against the US dollar this week alone.

At the time of writing AUD/USD is close to unchanged at 0.7100. With today’s lethargy aside, it’s been a stellar week for the Aussie, which continues to pull away from July’s two-year low.

Some of the Aussie’s recent gains is because of the softer-than-expected US inflation data released earlier this week.

The Bureau of Labor Statistics published the consumer inflation data for July on Wednesday. The headline Consumer Price Index (CPI) increased by 8.5 percent over the previous year. This was much lower than the 9.1 percent rate in June and below the forecasted 8.7 percent rate.

A risk-on atmosphere led US indices higher and the dollar lower. Because of the lower rate of inflation, the probability of a 75bp interest rate rise at the next FOMC meeting fell, adding to the dollar’s bearish sentiment. Subsequently, the Aussie had its best day against the dollar in almost two months.

At the current level the Australian dollar has risen close to 6.50 percent against the buck in the last five weeks. As a result, the Australian dollar to US dollar exchange rate could soon be back in positive territory year-to-date. But for that to happen, it must first deal with a substantial technical hurdle.

Aussie Dollar Technical Analysis

With so much going on in the world, predicting a currency’s future direction can be complex. Especially, for those of you wondering if now is a good time to send money to Australia. Thankfully, technical analysis can help us build a clearer picture of a currency’s immediate prospects.

What the Charts Say

Both the daily and weekly charts show AUD/USD is testing key technical resistance levels.

On the daily chart, the rate has cleared the 100-Day Moving Average (DMA) at 0.7080 (blue line) but so far is struggling at the 200-DMA. The longer-term indicator at 0.7150 (red line) is considered a significant support and resistance level. Taking this in to account, we might expect to see some profit-taking in long Australian dollar trades.

The 200-DMA is a strong barrier on its own, but when combined with an even more significant long-term signal, its importance increases.

Turning to the weekly price chart, we see the 200-Week Moving Average (WMA) sits at 0.7125 (red line). Notably, Wednesday’s rally reversed after briefly piercing the indicator. With this in mind, the 0.7080 (200-DMA) to 0.7125 (200-WMA) is a huge technical resistance level.

Should AUD/USD clear 0.7125 the Australian dollar should strengthen on the back of renewed inflows. However, until that time, the odds of a reversal remain high.

AUD/USD Price Chart (Daily)


AUD/USD Price Chart (Weekly)

Elliot Laybourne
Elliott is a former investment banker with a 20 year career in the city of London. During this time he held senior roles at ABN Amro, Societe Generale, Marex Financial and Natixis bank, specialising in commodity derivatives and options market-making. During this time, Elliott’s client list included Goldman Sachs, JP Morgan, Credit Suisse, Schroders Asset Management, and the Pennsylvania State Public School Employees Retirement System, amongst others. Today, he splits his time between Thailand and Dubai, from where he provides trading consultancy and business development services for family office and brokerage clientele.