Australian Dollar Struggles, Watching for a Downside break Against the Pound

The Australian Dollar is softer on Thursday, March 9 as the antipodean currency complex, AUD (-0.41% against the US Dollar) and NZD (-0.22% down against the US Dollar), were among the biggest losers in Asia.

The AUDUSD exchange rate tested the 0.75 mark; "the bearish trend reversal hints at a further sell-off," argues analyst Ipek Ozkardeskaya at London Capital Group, "the sell-off in Australian bonds accelerated; AU 10-year yields advanced to the highest since 2015."

The softer tone to the Aussie Dollar has allowed Pound Sterling to find some support.

GBP/AUD has been tapering to the apex of a steadily narrowing rang between lows at 1.5980 and highs currently at about the 1.6180 level.

The range can’t taper too much further before the exchange rate pops out, so we see a breakout on the cards.

Given there are more signals showing a probable upside break in the making than a downside break, we are marginally more bullish at this juncture – though this not a conviction call.

The large bullish day last Thursday, which also happened to be a bullish engulfing candlestick, was a sign of more upside to come, and possibly even a reversal from bear to bull.

New bull trends often start with above-average long up-day which alters the trend, and although the market has pulled back since then, we still see a marginally higher likelihood favouring an upside breakout.

The momentum indicator (MACD), has remained elevated during the recent sell-off, showing underlying strength and a lack of momentum lower.

We, therefore, favour a breakout higher to a possible target at 1.6330.

For confirmation, we would want to see a move above the 1.6236 highs.

The Australian Dollar had its main event on Tuesday, which was the Reserve Bank of Australia’s (RBA) interest rate decision.

The RBA kept rates unchanged at 1.5% as expected and the accompanying statement was neutral-to-positive.

Whilst the Bank highlighted the global recovery as a positive, a sluggish labour market and stubborn wage gains meant inflation was likely to stay low for some time, reducing expectations the bank would hike interest rates.

The result was neutral for the Aussie as currencies tend to emulate the direction of interest rates due to impact they have on international capital inflows.