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Australian Dollar Outlook: Huge Gains Put an End to Technical Downtrend

 

Just what the doctor ordered!

A 1.3 cent rally on Thursday marked the Australian dollar’s best day since early 2017. A further half-cent gained on Friday morning, prior to the day’s big event, US non-farm payrolls, took AUD/USD to a 5-week high of $0.726. Only a week ago, the struggling Aussie was quoted at a 2-½-year low of $0.702.

With September’s trade balance nearly doubling expectations, and with investors ineffably relieved by reports of Brexit progress and easing trade tensions, gains over the past 36 hours have been far reaching: among others, the Aussie has made great progress against the euro, Japanese yen, Canadian dollar, Swiss franc and, as stated, the US dollar.

For technical analysts, recent price action has been particularly significant. This year’s AUD/USD downtrend has, until this point, been demarcated by a trendline drawn across peaks on the daily price chart (seen above), and that much-referenced line has been convincingly broken. Those technically inclined will now point to targets for AUD/USD of at least $0.76—an exchange rate not seen since June.

AUD to EUR - 3 month chart to 02 Nov
AUD/EUR - 3 month chart to 02 Nov

Risks to the Australian dollar remain though. Concerning economic factors in the news this week include the housing market and the health of Australia’s top trading partner, China.

On Wednesday, it was announced that Sydney home prices are falling at an annualized rate of 7.4 percent (the fastest rate of decline in 30 years) and that might unsettle decision makers at the RBA. This week also saw the release of October’s Purchasing Managers’ Index for the Chinese manufacturing sector, which posted a 27-month low.

For foreign exchange analyst Sim Moh Siong of the Bank of Singapore, trade developments are key for the Australian dollar’s near-term trajectory. Reports that US President Donald Trump hopes to strike a trade deal with Chinese President Xi Jinping at this month’s G20 summit in Argentina are “positive for risk sentiment and supportive for high-beta currencies linked to the global growth cycle such as AUD,” Siong explains.

For 2019, the outlook for the Aussie remains optimistic, but little changed from that reported in September.

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