Australian Dollar's Rebound Faces Critical Test Against U.S. Dollar

Includes: FXA, UDN, UUP
by: Dr. Duru

In one more day, the Federal Reserve announces its next decision on monetary policy. In anticipation, the dollar (NYSEARCA:UUP) has traded lower and lower.

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U.S. dollar index follows through on breakdown below its 200DMA.

The Australian dollar has been one of the beneficiaries of dollar weakness. after a strong two month bounce in the summer, the Australian dollar cooled down again on the heels of macro-economic fears. This pullback came to an abrupt end after the Australian dollar traded down to flat for the year. After a sharp bounce back to the April highs, the Australian dollar now faces a critical test with the recent downtrend line looming directly overhead. A break through this line, and I expect the Australian dollar to eventually challenge last year's high.

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The Australian dollar has become resilient against numerous headwinds.

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Weekly chart shows the current downtrend that began with last year's historic highs against the U.S. dollar.

Source for charts:

In its last decision on monetary policy on September 2, the Reserve Bank of Australia held interest rates steady and gave no indication it would soon implement a fresh phase of rate cuts. The announcement contained no fresh alarms about the high currency or the Australian economy. So, all else being equal, the path of least resistance for the Australian dollar remains up against the U.S. dollar.

Be careful out there!

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in FXA over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.