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AUD Downtrend to End with Close Above $0.72; Prepare for November USD Buying

The Australian dollar will have to overcome seasonal weakness to rally from here but a mere 1 percent rise might be all that’s needed to begin a broader recovery, analysts have said. For the US dollar, appreciation is expected heading into year-end but the trend towards de-dollarization continues, this time in Venezuela.

Posted Oct 18, 2018

The Australian dollar’s near-term recovery was back on track on Thursday following the release of September’s Australian jobs report, in which the unemployment rate was reported at a five-year low of 5 percent.

After an initial dip on the headline employment change (+5.6k new jobs versus +15k expected), the Aussie rose roughly half a cent against the US dollar to $0.715, placing it within striking distance (within 1 percent) of the $0.72-0.7225 region highlighted by NAB as important for putting paid to the Aussie’s medium-term downtrend.

“A series of AUD/USD lower highs and lower lows . . . has again been confirmed in October with a new 2018 low. Bounces in Q3/Q4 have been capped by the 50-day Moving Average and daily Ichimoku Cloud base, now at $0.72-0.7225,” NAB’s technical analyst wrote on Wednesday. “A daily close above this will target a test of $0.7315, a break of which threatens the medium-term downtrend structure.”

For the US dollar, the typical year-end buying that drives up price is more likely in November than December, ING’s Viraj Patel shows this week.

Patel cites the Bloomberg Dollar Index’s average November return since 2010 of +1.8 percent. December returns, by comparison, are barely above zero (+0.15 percent) over the same period, although the past five Decembers have delivered slightly more—an average of +0.45 percent.

Of more interest to many readers will be the names of specific currencies that should suffer most against the dollar as we head towards 2019, and these are the Australian dollar, euro, yen and relative to the euro, the Norwegian krone. Of those, the yen has been especially weak in recent Novembers.

In other US dollar news, the trend towards de-dollarization continues with Venezuela’s announcement on Wednesday that going forward it will reference “all transactions in the domestic exchange market . . . using the euro and other convertible currencies.”

Venezuela’s minister of industry, Tareck El Aissami, described his wish for “imperialism [to pull] its murderous and criminal claws out of the country” and for Venezuela “to be free.”

Venezuela’s decision is seen as retaliation against crippling US economic sanctions which have seen it denied access to global capital markets.

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