Key Points:
- Price Reaches upper channel constraint.
- RSI and MACD trending lower.
- Expect to see a corrective move in the coming session.
The Australian dollar has been relatively resilient over the past few weeks as price action has seemingly defied some of the sharp fundamental swings and remained within a gentle declining channel. However, despite a large sentiment swing away from the USD over the past 24-hours, price action has just hit the upper channel constraint and this could see the venerable Aussie dollar make a move lower in the coming session.
Taking a look at the AUD’s technical charts and price action over the past few months paints a relatively clear picture of the potential moves that lay ahead. The pair has traded within a declining channel since the 20th of October and price action has just again reached the upper constraint. In addition, the RSI Oscillator and MACD indicators are both trending lower suggesting that there is building pressure for a downside correction.
Subsequently, there is a key support level at 0.7648 that could be relatively critical in the coming hours. A breach of this point could signal the start of a tumble that may not cease until the pair is resting at the bottom of the channel near the 0.7550-70 mark. This is relatively likely given that much of the bullish moves over the past few days have been fed by capital flight out of the USD rather than any specific AUD technical or fundamental strength.
In fact, it is arguable whether the current strength of the Australian dollar is sustainable given the wide economic divides between the current US economy and Australia’s trade and currency flows. Although the Reserve Bank of Australia recently elected to keep their cash rate on hold at 1.50%, it’s almost assured that they will need to cut in either December or early 2017. In addition, the FOMC are very likely to again seek a 25bps hike in December which would only highlight the different directions of both economies.
Ultimately, from both a technical and fundamental perspective, the Aussie dollar was always going to find it difficult to hold above the 76 cent handle. Therefore, it was only a matter of when not if it would retrace its recent gains. So keep an acute watch on the pair in the ensuing session as the move will occur relatively quickly when support is finally breached.