Australian Dollar, AUD/USD, Cycle Analysis, Technical Analysis – Talking Points:
- Time-cycle analysis indicates that the Australian Dollar may outperform its US counterpart over the medium to long-term
- AUD/USD testing key downtrend as technical indicators surge to multi-year highs.
The Australian Dollar appears poised to extend its 5-month surge against its US counterpart, after setting a key bottom, and fresh 17-year low, in March (0.5506).
AUD/USD Monthly Chart – Cyclical Upturn in The Offing?
AUD/USD monthly chart created using TradingView
The chart above highlights the cyclical nature seen in AUD/USD rates over the past 24 years, with the currency pair largely adhering to what appears to be an 8-year rotation. Setting significant bottoms in early 2001, late 2008 and 2016.
Bullish RSI divergence in 2001 seemed to signal the end of the Australian Dollar’s five-year decline from the December 1996 high (0.8215) and triggered a shift in overall market sentiment, as price surged over 104% to eventually peak in July 2008 (0.9850).
Recent price action is strikingly similar to that seen early in the bullish cycle ignited in September 2001 and could be indicative of further upside for AUD/USD, if price can clear the downtrend extending from the 2014 high (0.9505) and the 61.8% Fibonacci (0.7207).
To that end, the trade-sensitive currency could be poised to substantially extend its recent 32% surge against its haven-associated counterpart, with cycle analysis suggesting AUD/USD may rise as much as 60% from current levels to eventually peak in late 2025.
Of course, this is not a given when taking fundamentals into account. Nevertheless, investors should continue to monitor long-term developments, as a monthly close above the 61.8% Fibonacci may generate a sustained climb back towards the 2018 high (0.8140).
AUD/USD Weekly Chart – 200-MA Stifling Buying Pressure
AUD/USD weekly chart created using TradingView
Zooming into a weekly chart, the 200-week moving average (0.7208) has continued to cap upside potential since late July, as a series of doji and hammer candles indicate an influx of selling pressure just shy of the 2019 high (0.7295).
That being said, price is constructively perched above support at the 61.8% Fibonacci (0.7131) which suggests the path of least resistance remains to the upside.
Furthermore, the RSI and MACD indicators continue to track at their highest levels since 2018 and may encourage further buying pressure, as the ‘faster’ 21-MA (0.6801) gears up to cross above its ‘slower’ 50-period counterpart (0.6816).
A weekly close above the 2019 high (0.7295) is needed to validate the break of the 2011 downtrend (blue zone) and carve a path to test the 78.6% Fibonacci (0.7573) and psychologically imposing 0.76 level.
AUD/USD Daily Chart – Rising Wedge in Play?
AUD/USD daily chart created using TradingView
Scrolling into a daily time-frame and a bearish Rising Wedge reversal pattern looks to be taking shape just shy of the 2019 high (0.7295) and could generate a significant pullback if psychological support at the 0.71 level fails to hold.
The development of the RSI is also indicative of a potential pullback in AUD/USD rates, as it fails to follow price to higher highs and sinks back towards its neutral midpoint.
However, the gradient of the 50- and 200-day moving averages remain positively skewed and may continue to direct price back towards resistance at the 2019 high.
A daily close above the 0.73 level is needed to invalidate the bearish reversal pattern and could signal a shift in overall market sentiment, confirming a break above the 2011 downtrend and opening a path to test the 2018 high (0.8136).
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— Written by Daniel Moss, Analyst for DailyFX
Follow me on Twitter @DanielGMoss
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