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Australian Dollar Benefits From Risk Appetite, Japanese Yen Gives Back

Australian Dollar Benefits From Risk Appetite, Japanese Yen Gives Back

2010-07-08 15:39:00
David Song, Currency Strategist
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07.08_DWL1

The Australian dollar extended the rally from earlier this week and is the best performing major currency against the greenback on Thursday, and the exchange rate may continue to push higher throughout the U.S. trade as investors raise their appetite for risk. The AUD/USD is nearly 120pips higher from the open after moving 98% of its average true range, but the intraday rally appears to be tapering off ahead of 0.8800 as the 30-minute RSI falls back from overbought territory. As a result, the bearish divergence in the relative strength index could lead the aussie-dollar to retrace the intraday advance and drive the pair to cover the gap from the 120-SMA at 0.8570 going into the end of the week. However, as the outlook for future growth improves, with the economic recovery gathering pace, the Reserve Bank of Australia may see scope to tighten policy further over the coming months, which could spark speculation for another rate hike and support the near-term rally from the June low (0.8081).

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The Japanese Yen weakened across the board following the shift in market sentiment,  but the overnight rally looks to be tapering off as the 30-minute RSI falls back from a high of 82. The USD/JPY is 90pips higher on the day after moving 84% of its ATR, and the bearish divergence in the relative strength index could lead the dollar-yen to pare the overnight advance and push the exchange rate back towards the 240-SMA at 87.72. At the same time, the 50-Day SMA (90.93) looks poised to break below the 200-Day SMA at 90.73, and we may see price action work its way back below the 10-Day SMA at 88.25 as the technical signals foreshadow a bearish outlook for the exchange rate.

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To discuss this report contact David Song, Currency Analyst: instructor@dailyfx.com

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