Charting Asia

A weaker US dollar is pushing its Australian counterpart higher

Key Points
  • The Aussie is bumping up against a level of $0.81
  • If it crosses that level, there is a potential to test $0.845

The Australian dollar is challenging a long-term resistance level near $0.81. It challenged that level in September 2017, but then fell back to lows near $0.75. A breakout above the upper edge of a long-term trading band has the potential to test $0.845.

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This is a technical target based on the trading band projection. This level has no previous history of support or resistance so this leaves open the potential for the Australian dollar to move above this technical target.

It is difficult to ignore the performance of the U.S. dollar as Aussie strength is often a direct consequence. The U.S. dollar index has fallen below $0.90. The Australian and U.S. dollars have an inverse relationship.

This suggests an Australian dollar rebound rally is well embedded until the dollar resumes its uptrend. The failure of support near $0.91 on the U.S. dollar index, and the failure to create a double-bottom pattern, suggests continued weakness in the dollar.

Although the Australian dollar may be driven by the weakness of the dollar, it is the behavior of the Aussie that sets the breakout targets.

The long-trading band is the most significant feature on the Aussie chart. The upper edge of the trading band near $0.775 was established in April 2016.

The December 2017 breakout above $0.775 is significant because it is the second strong rally move in six months. Just as with the July 2017 breakout, the December breakout has moved rapidly to the next resistance feature near $0.81.

The resistance level is now experiencing its third test in six months and this increases the probability that the Aussie can break above resistance.

A breakout above this level may have significant impact with the Reserve Bank of Australia reluctant to increase interest rates when the Aussie is strong. The low-interest rate setting adds further fuel to the Australian housing market and magnifies the impact of any market crash.

The width of the trading band is projected upwards to set a target near $0.845. That target is treated with caution and used as a guide only because the price projection methods are not quite as reliable as they are with index and equity charts.

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We use the Guppy Multiple Moving Averages indicator analysis to identify trend strength and trend changes. Full trend confirmation is when the short-term GMMA moves completely above the upper edge of the trading band. This is the key indicator and we use the ANTSSYS trade and analysis method to identify the opportunities as the rally continues.

Daryl Guppy is a trader and author of Trend Trading, The 36 Strategies of the Chinese for Financial Traders, which can be found at He is a regular guest on CNBC Asia Squawk Box. He is a speaker at trading conferences in China, Asia, Australia and Europe. He is a special consultant to AxiCorp.

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