There’s constant consolidation with the Aussie these days. But today it’s up. AUD is up 0.15% against USD, 0.20% against EUR, 0.29% against GBP and 0.15% against JPY. The move is broad based Aussie, not just against the USD.
Indeed, the yield still helps the Aussie. Australia’s 10-year yield is around 4.84% and the US’ yield is about 4.441%. That’s a 40 bps premium. But still a month ago it was much higher, around 58 bps. We’ve lost some spread on the carry but that’s okay.
I tend to use AUD/JPY as a sort of confirmatory tool for AUD/USD given its dynamics. For the most part we are seeing that breakout for AUD/JPY from a trend perspective on the Renko. Bricks are above both the 21-EMA and the Supertrend line on the short term. For the medium term trend following indicator we have the 50-SMA which is also below the bricks. Moreover from a much longer term perspective, AUD/JPY is trading above the 500-SMA. What we need to look out for is diminishing momentum. While the RSI is pointing higher and above 50, the Z-Score SMA is trending lower. That’s a sign of bearish divergence. So we may get a couple of red bricks, hopefully towards the 21-EMA. But all in all we’re looking at a retest of the 114.3 resistance level for AUD/JPY.
We have AUD/USD back above its 21-EMA and Supertrend line on the Renko. So things are positive in the short term for the Aussie relative to the USD. The momentum is there. We have the RSI above 50 and trending higher along with the Z-Score SMA trending higher, positive and not extended. The real test is the break above the 50-SMA as AUD/USD is comfortably above its 500-SMA. We may just get that heading into June, accompanied by a retest of the 0.7270 resistance level.
Resistance Levels: 0.72715, 0.74070
Medium Term Path: After about 10 days of consolidation we have some positive moves on AUD/USD. My expectations would be for the Aussie to clear its 50-SMA on the Renko as we head into next week. Thereafter we can see another test and possibly a breakout at the 0.7270-0.72715 resistance zone with a march towards 0.7407 in the short to medium term for AUD/USD.
Cedric Thompson, CMT, CFA, is an investment strategist with experience in asset management, corporate strategy, and multi-asset investing.