Will The Aussie Play Catch-Up With The Kiwi?

By Faraday Research (Matt Simpson)CurrenciesNov 09, 2018 04:20AM ET

www.investing.com/analysis/will-the-aussie-play-catchup-with-kiwi-200357418

Will The Aussie Play Catch-Up With The Kiwi?

By Faraday Research (Matt Simpson) | Nov 09, 2018 04:20AM ET

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AUD/USD

-1.03%

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USD/CAD

+0.73%

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USD/NZD

+1.10%

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We’ve seen NZD go from strength to strength since breaking its channel, so we’re intrigued to see if AUD/USD can now play catch-up.

Sentiment-wise, there’s an argument for AUD to carve out a low. Using the weekly COTS report, combined net positioning for AUD, CAD and NZD shows traders remain near a record level of short exposure for commodity currencies. With exposure near a sentiment extreme, each tick higher for these pairs runs the risk of short-covering which could add further fuel to a bullish fire.

Net Positioning AUD,CAD,NZD Combined

We can see on the AUD/USD weekly chart that, despite its multi-month downtrend, traders failed to push AUD/USD down to 70c. A bullish divergence warned of weaker momentum ahead of a bullish hammer reversal, which marked a fakeout at the lows before breaking its long-term bearish channel. Still, the 20-week MA is currently capping as resistance, so there’s still plenty of work for bulls to do before claiming victory.

AUD/USD

We can see on the daily chart that the broken channel provided support for another leg higher. Although yesterday’s bearish hammer, which failed to test a bearish pinbar at 0.7315 warns of near-term weakness. However, given that this is (potentially) the first leg of a reversal, then a retracement from recent highs wouldn’t go unexpected.

Australian Dollar-US Dollar

A support zone likely awaits around 0.7160/82 (20-day MA, trendline and structural levels), so we could see AUD carve out a new range between 0.7160 - 0.7315. So for now, AUD may be better suited to range trading strategies (sell high, buy low) but we’ll continue to keep a close eye for a break above 0.7315 to signal the next bullish leg on the daily. And, if recent developments on NZD/USD are anything to go by, we may not have to wait too long.

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Will The Aussie Play Catch-Up With The Kiwi?

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