Will the Aussie Dollar Reverse?

Key Points:

• Declining channel forming.

• EMA bias remains bearish.

• Parabolic SAR reading signalling a reversal is likely.

The Aussie Dollar closed the week much where it started despite a rather substantial tumble on Tuesday. The slip was a result of the unexpectedly strong uptick in the US CB Consumer Confidence figure which offset any positive sentiment supplied by the Australian Building Approvals data. However, like most of the market, the AUD rallied as the week closed due to the US results being softer than forecasted. Moving on, the Australian Cash rate and GDP announcements will be in focus.

Whilst the AUD/USD at first looked to be regaining its footing on Monday, the subsequent session proved that the pair still had some room to tumble. Specifically, the stronger US CB Consumer Confidence result of 101.1 sent the AUD reeling and even a 11.3% uptick in the Australian Building Approvals data was unable to slow the plunge back to the 0.7508 support.  However, on the back of Thursday’s and Friday’s weaker US Employment results, the Aussie Dollar managed to claw its way back to much where it opened the week around the 0.7568 mark.

On the technical front, the Aussie Dollar has moved back into conflict with the 0.7588 zone of resistance which could mean another reversal is imminent.  Such a reversal would be in line with the bearish EMA bias and the current Parabolic SAR reading. Additionally, the pair is current nearing the upside constraint of the newly formed declining channel which should encourage it to make a move to the downside in the coming session. However, EMA activity on the shorter time frames is now reversing to bullish so expect some lack of consensus ahead of the Cash Rate decision.

Speaking of which, the Australian Cash Rate decision and GDP results will be in focus for the pair moving forward. Current forecasts are predicting that the rate will remain unchanged this time around and the recent 0.8% increase in Australian commodity prices should satiate the RBA’s appetite for depreciating the currency. However, remember to keep an eye on the Australian GDP data as weaker outcomes could see the AUD resume its recent decline.  

Ultimately, the bias for the AUD is still bearish and this should remain the case even without intervention by the RBA. This being said, watch out for any breakouts from the upside of the channel in the lead up to the decision as they could result in a near-term uptrend. Additionally, monitor the other fundamentals that are due this week as they are likely to have a strong impact given the somewhat mixed technicals.