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The Australian Dollar has put in what by recent standards has been quite an impressive run of gains against the US Dollar since it bottomed out on the daily chart on September 9.
Those gains have been fundamentally based in the man. They have been rooted in investor hopes that full trade war between the US and China can be avoided and by more strong data out of Australia- notably in the fields of job creation and overall economic growth.
However, the one overarching fundamental driver has yet to change and it remains very much in the Australian Dollar’s favor. The Official Cash Rate remains at the 1.50% record low which has endures since August, 2016. It’s not expected to rise this year, or indeed for all of next by current futures market pricing.US rates by contrast are widely expected to go up once more this week.
Coupled with an upbeat prognosis from the Federal Reserve this could put focus back squarely on rates at a time when, technically AUD/USD seems to be wilting once again. The pair’s September gains have notably failed to break the pervasive downtrend, channel which has been in place for nearly all of 2018.
Assuming its upside remains unbreakable resistance, then focus will once again be to the downside with September 9’s lows around 0.7096 as an immediate bear target. Stop-loss buying at that channel top will probably provide adequate protection, and investors might want to consider a similar trade in NZD/USD, where the recent daily-chart trading pattern looks very similar. New Zealand remains an economy doing quite well, fundamentally but sticky inflation and crippled business confidence continue to dog the monthly data round.
Once clear risk to this trade is that the Fed sounds less hawkish when it gives its monetary policy dispensation on Wednesday. The chance of a rate rise is held to be more than 90% according to the Chicago Mercantile Exchange’s Fedwatch pricing tool, so what the central bank has to say will probably be more important for the market than what it does to rates.
It is notable too however that trading action has not taken AUD/USD down to the channel base since May, and may not do so again in this instance. In the short-term at least it might be best not to play for further falls much below the recent daily-chart low.
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- Find out how AUD is viewed by the trading community in real time at the DailyFX Sentiment Page
- Strategy not working? Here’s the number one mistake traders make
- Just getting started? Check out the DailyFX Beginners’ Guide.
--- Written by David Cottle, DailyFX Research
Follow David on Twitter @DavidCottleFX or use the Comments section below to get in touch!
