AUD/USD Consolidates Near 2016 Highs Ahead Of Aussie Minutes

AUD/USD may be on pace to end a six-day winning streak as resistance from last year’s highs has held the pair lower today but the pair posted an impressive rally last week with a technical break that points to more upside over the medium-term.

AUD/USD printed the highest weekly close in over two years after breaking above trendline resistance last week. The trendline connects the April 2016 high with the high posted in November 2016 and had held the pair lower on several tests earlier this year.

In addition to the trendline break, last week’s bullish push has taken it out of a range that has been playing out since early 2016, best seen on a weekly chart.

Last week’s developments signal a bullish directional bias over the medium term and will tend to keep the pair bid on dips.

In the near-term, the pair is faced with resistance at 0.7835 which marks the 2016 high.

The Reserve Bank of Australia is scheduled to release the minutes from their monetary policy meeting held earlier this month. The RBA had been fairly consistent in carrying a neutral to a slightly optimistic tone since last cutting rates in August but came across slightly dovish in the monetary policy statement that accompanied the July meeting. The result was a decline in AUD/USD which accounted for a single day loss of about 55 points. The pair has recovered since then, but the meeting minutes should reveal more details.

The decline in early July was attributed to market expectations, and the subsequent disappointment, for the RBA to take a more hawkish tone. Several other central banks which have been dropping hints of policy tightening which had led to the speculation. Last week’s rate hike from the Bank of Canada will tend to keep speculators expecting some form of tightening from the other major commodity economies in the near future.

The RBA will release minutes from the July meeting at 21:30 EST today.

Some notable divergences are seen between the Australian dollar and its antipodean counterpart, the Kiwi dollar. NZD/USD was unable to follow last week significant technical break in AUD/USD and is seen struggling to make a sustained break above a high posted a few weeks ago.

Positioning, however, shows a clear preference for the New Zealand dollar as the net long rose to a multi-decade high in the latest COT report.

There was a build in the Australian dollar net long which marked a fourth consecutive week of improved sentiment but the position size remains below what was seen in March and April.

The first level of support for AUD/USD falls at 0.7778 which marks the November 2016 high. Stronger support for the currency pair falls at 0.7778 which reflected the highest weekly close in two years prior to last week’s technical break above it. A sustained break above the 2016 high shows the next major upside target at 0.8031. The level was support in early January 2015 and resistance in May 2015 and falls within close proximity of the psychological 0.8000 handle.

AUD/USD Weekly Chart

AUDUSD Weekly July 17

Jignesh is an analyst and trader, specializing in currencies and commodities. He utilizes a macro view as well as a proprietary method of pattern recognition that is based on the principles of Elliott wave. His focus is to assess strength in trends, and perceiving high potential turning points in the markets. He brings over 4 years of experience in his current role.