The AUD/USD is surging forward to start this week after strong data out of Australia’s most important trading partner. The June Chinese HSBC Manufacturing PMI report clawed its way back above the key 50 level in today’s Asian session, showing rising manufacturing activity for the first time this year.
This report, which assembled by a “neutral” third party bank (HSBC), is seen as more reliable than next week’s official government Manufacturing PMI report, but both measures are now in expansionary territory regardless.
The surprisingly strong reading drove the AUD/USD over 50 pips higher in today’s Asian session trade, and the pair is now back to within striking distance of its 2014 high at .9460. At this point, the biggest concern for Aussie bulls is the RBA; the central bank has previously expressed discomfort when the exchange rate approached the .9500 handle.
With the overall Australian economy still vulnerable, as evidenced by the disappointing retail sales data and outright contraction in employment earlier this month, the last thing Australian authorities want to see is continued strength in its currency. Moving forward, dovish rhetoric out of RBA authorities may be one of the biggest fundamental risks for the Aussie.
On a technical basis though, the picture in AUD/USD is increasingly bullish. The pair continues to put in higher highs and higher lows since forming a double bottom at .9200 in late May.
More immediately, rates are currently carving out a daily Bullish Engulfing Candle*, showing a strong shift back to buying pressure after the pause late last week. The secondary indicators are also painting a bullish picture, with both the RSI and MACD trending higher in bullish territory.
For this week, the key technical hurdle will be .9460: if the AUD/USD can break through that barrier, we’ll likely see a quick run to the .9500 handle. Above that level, there is minimal technical resistance until the 1-year high around .9700, but we suspect that the RBA’s rhetoric will be an increasingly strong headwind if the Aussie continues its ascent. Meanwhile, near-term support is likely at .9320, last week’s low, and .9200, the May double bottom.
*A Bullish Engulfing candle is formed when the candle breaks below the low of the previous period before buyers step in and push rates up to close above the high of the previous candle. It indicates that the buyers have wrested control of the market from the sellers.