AUD/USD Hits New Highs but Forex Analysis Shows 3 Reasons for Decline

Tradervox.com (Dublin) - AUD/USD exceeded its September 0.9527 high in early Tuesday trading, establishing almost a four-month high in the process. This new high has also slightly breached the 38.2% Fibonacci retracement level of the long plunge from the April high near 1.0600 down to the August low around 0.8850. Current price action extends the bullish reversal that was initiated with a head and shoulders pattern in July and August, whose neckline was broken to the upside in early September.

The reversal was advanced further after the pair pulled back in a falling wedge pattern and then broke to the upside above the pattern. The first target on that breakout was the noted September 0.9527 high, which has just been reached and tentatively breached. The next major upside target resides around the key 0.9650 resistance level, which is also in the general vicinity of the head and shoulders price target, followed by the 0.9850 resistance level. Major downside support currently resides around the 0.9400 level

The Australian Central Bank’s meeting minutes showed once again that another rate cut is not imminent. This boosted AUD/USD and sent it to the lowest levels since mid-June. However, this 4 month high didn’t hold for too long and the pair retreated back down. Is it the false break before the real one? Or is this failed attempt? Despite the bullishness, here are 3 reasons that point to the latter option.

Why could the Aussie turn lower?

  1. RBA doesn’t like high AUD: One of the drivers to lower the rates back in May was the high exchange rate. This began the big fall of the Aussie. The RBA would like a weak Aussie, and its recent recovery was “noted” by the RBA, and they said they were uncertain if it would be sustained. So, the RBA wants and forecasts a lower value for the A$.
  2. US politics: Assuming a resolution of the political debacle around the debt ceiling and the government shutdown, the US dollar could further strengthen. While the Aussie, a natural risk currency, would normally benefit from less uncertainty, the recovering USD (that already hurt the euro), could also sweep the Aussie down.
  3. China trade: Over the weekend, China reported a surprising drop in exports. Chinese data is doubted by many, but trade balance is one of the hardest things to falsify. If China exports less, it also imports less. As Australia’s No. 1 trade partner, Chinese weakness could weigh on the Australian dollar as well.

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