Australian Dollar Forecast:
- The Australian Dollar surged in December, breaking through key trendline resistance and the 200-day simple moving average.
- Last week I noted that the rally looked overdone and was vulnerable to a pullback
- In the days since, AUD/USD has plummeted and now threatens to fall beneath the 200-day moving average once more, will bulls react?
Australian Dollar Forecast: AUD/USD Falters, Will it Fall Further?
The Australian Dollar was one of the better performing major currencies in December but ventured into overbought territory and looked susceptible to a pullback as I noted last week. Since then, AUD/USD has suffered a series of daily declines and now threatens the 200-day simple day moving average and shifting fundamentals could see the Australian Dollar fall further.
| Change in | Longs | Shorts | OI |
| Daily | -4% | 13% | -1% |
| Weekly | 6% | 9% | 7% |
AUD/USD Forecast
Despite risk appetite elsewhere, AUD/USD continued to slip after cooling US-Iran tensions, suggesting broader risk trends are not solely to blame for the retracement. Deteriorating economic data from the Australian economy has stoked rate cut odds for the Reserve Bank of Australia’s February 4 meeting which is likely to blame for some of the Aussie Dollar’s recent decline. As rate cut odds jumped to 52% from 38% last week, the sudden shift in monetary policy forecasts may continue to drive AUD/USD weakness.
AUD/USD Price Chart: Daily Time Frame (December 2018 – January 2020) (Chart 1)
Further still, catastrophic wildfires across the continent could work to impede economic growth in the short term, which may appear in next month’s data - although the impact will likely be minor. Together, weakening data exacerbated by wildfires and rising rate cut odds could look to pressure the Australian Dollar further, which leaves the descending trendline from December 2018 as the primary defender against an extension lower.
Residing around 0.68, the level has shown its ability to influence price numerous times in the past. That being said, the 200-day simple moving average is nearby, but its shorter-term impact may be reduced because of its proximity to price. Still, a daily close beneath the line will work to further erode AUD/USD.
Therefore, it appears as though the Australian Dollar could soon forfeit the entirety of its December gains as it threatens to slip back into its longer-term downtrend. If bears can break through the descending band, AUD/USD may look to employ support around the 0.67 level which helped to buoy price throughout August, September and November. In the meantime, follow @PeterHanksFX on Twitter for updates on this trade idea.
--Written by Peter Hanks, Junior Analyst for DailyFX.com
Contact and follow Peter on Twitter @PeterHanksFX
Read more: How to Invest During a Recession: Investments & Strategy
