M. Jensen: what about Aussie?
By Mark Jensen
I think it’s time to have a proper look on Australian dollar. The general opinion is that we’re having the downtrend. For example, Morgan Stanley says that Aussie’s fair value is at $0.8000.
AUD/USD has been under pressure since late July when it failed to rise above $0.9270 as investors were speculating about potential earlier policy tightening in the US, while expecting no more moves from the RBA which pledged a period of stable rates. Australia’s unemployment rate released last week rose to 12-year high and sent the pair down to $0.9240.
Today Aussie rose on the news that consumer sentiment rose by 5.9% in the past 3 months, but it faces resistance for the recent downtrend lies in the $0.9305/20 area. The 55-, 100- and 200-day moving averages on are horizontal, though the 20-day one did cross the 100-day one to the downside.
The main resistance will be at $0.9355 (50% Fibo of the decline since July 24 and the bottom of the daily Ichimoku Cloud). Note that there’s a bigger downtrend with resistance in the $0.9430 area. Theoretically Aussie should draw support from the carry trade as Australia does have higher yields. If US data fails to keep generating stronger readings and lifting US yields, the players can recall Australia and Aussie will make a deeper correction up.
However, higher geopolitical risks which look like they aren’t going to subside decrease the market’s risk appetite and investors’ demand for higher yields. This is a limiting factor for Aussie. If it’s accompanied by more positive surprises from the US and more negative surprises from Australia and China, the bearish forecasts will be doomed to come true.
On the downside targets for AUD/USD are $0.9200 (55-week MA), $0.9180 (38.2% Fibo of the 2014 advance) and $0.9085 (50% Fibo).
Chart. Daily AUD/USD