Heading into tonight’s Asian session, most traders will be focused on the RBNZ’s interest rate decision and its impact on the New Zealand dollar. However, the AUD/USD has been quietly rallying for the past seven days and a developing technical pattern suggests that the Aussie may steal the Kiwi’s spotlight in the latter half of this week.
Tackling the economic outlook first, data from Australia (as well as major trading partner China) has been generally strong, including the large improvement in consumer sentiment from -6.8% to +0.2% in today’s Asian session. The next measuring stick will be the release of Australia’s employment report in tomorrow’s Asian session; the economy has added jobs at a faster-than-expected rate in each of the last three months, and with the market still only anticipating about 14k new jobs, another beat could be in the cards.
After bottoming around .9200 in early May, the AUD/USD retested that floor at the end of the month and was once again met with strong buying pressure. With two lows at essentially the same level, a break above the May peak at .9410 would confirm a clear double bottom pattern. Thus far, the pair has failed to retrace even 38.2% of the Q1 rally, suggesting that the bulls are still in control on a longer-term basis.
Beyond the classic price action pattern, the secondary indicators are also supportive of further gains in the pair. For instance, the RSI indicator found support into the key 40 level in late May, indicating that the overall uptrend remains intact. Meanwhile, the MACD has turned higher and is now in an uptrend above both its signal line and the 0 level, showing strong and growing bullish momentum.
If tonight’s jobs report meets or beats expectations, the AUDUSD rally is likely to continue, with bulls turning their eyes to the 2014 high at .9460 next; on a longer-term perspective, the measured move target of the double bottom comes in all the way up at .9615, though the RBA may start to jawbone the currency lower before it can reach that level. Of course, a disappointing jobs report would likely keep the AUD/USD locked within its 2-month range from .9200 to .9400 for a bit longer.