The Australian Dollar

Stock Watch

by Regina Meani

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From as early as mid-1986 the US$0.75-80 zone has presented a formidable barrier to the Australian Dollar against the US Dollar. The A$ (US$0.7313) broke through in June 1988, then later in June 2007, with the last successful breakthrough in September 2009. Since then, the A$ has not been able to sustain an advance through the barrier zone.

In the Pandemic plunge of March 2020 to US$0.56, the A$ fell to parallels of support drawn from the 2001 low and from 2009. The fall also pushed the price into very oversold. The combination produced a pivotal turning point and spurred a strong recovery. The initial upswing saw the A$ reach the US$0.70 area where it paused briefly in June/July 2020 before pushing higher to US$0.74 where resistance and waning momentum produced a pullback to support at US$0.70. From here the A$ kicked higher in a strong upsweep to halt around US$0.78 in January this year, finding itself in the US$0.75-80 barrier zone.

From January through to the end of June the A$ oscillated between US$0.75 and $0.80 in a volatile distribution phase that led to a breakdown to US$0.73 in mid-July where there was a brief relief pause before the downward action continued until the A$ executed a one-day reversal from $US0.7106 on 20 August.

The immediate bounce has some positive characteristics that suggest the rally is likely to continue but that resistance at US$0.7319-45 may hold back the advance and create some volatility in the US$0.7150 to $0.7319 area as the action plays out. On a break up through US$0.7345 the A$ would gain the ability to test higher resistance located around US$0.7425 and then US$0.7530-50 in another attempt at the US$0.75-80 barrier zone.

The risk, until there is a definitive break up through the US$0.7345 resistance, would be a return to the downswing which would be triggered on a drop through $US$0.7150 over the coming week. This would need to be followed by a confirmation drop through US$0.7100. Such an action would indicate a drop to US$0.7000 with a further fall possible to test the US$0.6800-30 critical support zone.

At this stage, the positive longer-term outlook is well supported but it may still take some time over the near to medium term for the A$ to climb through its barriers. The support and resistance areas, mentioned above, may well serve the trader while the investor may wait for more clarity.

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