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AUD/USD Rebound Undermined by Historical Behavior Around 200-Day SMA

AUD/USD Rebound Undermined by Historical Behavior Around 200-Day SMA

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Australian Dollar Talking Points

AUD/USD recoups the losses from earlier this week as Australia Employment picks up more-than-expected in November, but the failed attempt to close above the 200-Day SMA (0.6904) undermines the recent rebound in the exchange rate amid the historical tendency around the moving average.

AUD/USD Rebound Undermined by Historical Behavior Around 200-Day SMA

AUD/USD extends the advance from the weekly low (0.6828) as Australia adds 39.9K jobs in November, with the unemployment unexpectedly narrowing to 5.2% from 5.3% the month prior.

The data may encourage the Reserve Bank of Australia (RBA) to retain a wait-and-see approach in 2020 as “recent outcomes suggest that the Australian economy can sustain lower rates of unemployment and underemployment.”

Image of RBA interest rate decisions

In turn, the RBA may stick to the sidelines at the next meeting on February 4, but the central bank may continue to endorse a dovish forward guidance as Governor Philip Lowe and Co. insists that the central bank has “the ability to provide further stimulus to the economy, if required.”

The RBA may continue to respond to the shift in US trade policy despite the Phase One deal as the Trump administration“will be maintaining 25 percent tariffs on approximately $250 billion of Chinese imports, along with 7.5 percent tariffs on approximately $120 billion of Chinese imports.”

The slowdown in China, Australia’s largest trading partner, is likely to keep the RBA on its toes as “the US–China trade and technology disputes continue to affect international trade flows and investment,” and the central bank may continue to insulate the economy in 2020 as the International Monetary Fund (IMF) warns that “unconventional monetary policy measures such as quantitative easing may become necessary.”

With that said, the RBA may reestablish its rate easing cycle over the coming months, and the recent rebound in the exchange rate may prove to be short lived amid the failed attempts to close above the 200-Day SMA (0.6904).

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AUD/USD Rate Daily Chart

Image of AUD/USD rate daily chart

Source: Trading View

  • Keep in mind, the AUD/USD rebound following the currency market flash-crash has been capped by the 200-Day SMA (0.6904), with the exchange rate staging multiple failed attempts to close above the moving average in 2019.
  • A similar scenario appears to be taking shape in December as the advance from the monthly low (0.6762) fails to produce a closing price above the simple moving average.
  • The Relative Strength Index (RSI) highlights a similar dynamic as the oscillator snaps the bullish formation from earlier this month.
  • The failed run at the Fibonacci overlap around 0.6950 (61.8% expansion) to 0.6970 (23.6% expansion) has pushed AUD/USD back below the 0.6910 (38.2% expansion) region, with the exchange rate at risk of facing range bound conditions as it bounces back from the 0.6830 (23.6% expansion) to 0.6850 (78.6% expansion) region.
  • Need a break/close below the 0.6780 (38.2% expansion) to 0.6800 (61.8% expansion) region to bring the downside targets back on the radar, with the first hurdle coming in around 0.6720 (78.6% expansion) to 0.6730 (50% expansion).

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--- Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.