AUD Rally Continues, 0.77 Handle Now in Focus

Key Points:

• Upsides are available but just how far the rally can extend is unclear.

• Last week’s performance leaves the AUD well positioned to surge.

• Both technicals and fundamentals are going to be vital this week.

The AUDUSD has been trending higher for some time now and many are beginning to question where it willend up. Some analysts have the pair pegged to hit the 0.80 handle before reversing once again but the 0.77 level also seems to be providing ample resistance as well. As a result, it’s worth taking a look at the AUD’s most recent week and also what the bias could be for the week to come.

Starting with last week’s performance, the Aussie Dollar spent most of last week trending steadily higher in reaction to a number of weaker US fundamental results. Namely, the Market Flash Manufacturing PMI came in at only 54.3 and the Jobless Claims increased to 244K. Any positive US data was offset by the 0.5% uptick in the Australian Hourly Earnings result and remarks from the RBA’s Lowe signalling that he believed interest rates had bottomed. However, news that Deutsch bank had forecasted an AUD rally up to the 0.80 mark also added to the overall buying pressure. Unfortunately, these gains were short-lived as a strong Michigan Consumer Sentiment result of 96.3 was all it took to send the pair reeling as the week closed.

As a result of last week’s performance, the AUDUSD is in an interesting position. Specifically, the pair has some room to move higher but it is also beholden to the zone of the resistance around the 0.77 handle which seems intent on remaining in intact. Consequently, we will have to look at both the technicals and the fundamentals to establish a bias for the week to come.

On the technical front, the AUD looks to be firmly in an uptrend with the 12, 20, and 100 day EMA’s being about as bullish as they possibly could be. Additionally, whilst the rally is moderating somewhat, the Parabolic SAR readings and the ADX oscillators are both signalling that this uptrend remains fairly robust. Interestingly, the RSI is still neutral which seems to indicate that gains may also be more sustainable that initially thought, despite them likely being capped by the 0.77 handle once again.

As for what lies ahead in the news, there is quite a lot of economic data on offer but the major item to monitor is the Australian GDP result. Specifically, the quarterly data is due to be released and, whilst it is currently forecasted at 0.7%, the market will be wary of another negative outcome which would put the nation into a technical recession. Indeed, these fears will be mounting in the wake of Lowe’s remarks, in which, he mentioned that Australia was unlikely to reach its 3% GDP growth target. However, a sufficiently positive result could be just the thing needed to spark a rally capable of pushing past the 0.77 handle.

Ultimately, upsides are present for this pair but just how large these are is much less certain. As a result, monitor both the technical and fundamental factors mentioned above as they will be invaluable in staying ahead of the rather unpredictable AUD.