Australian Dollar on Target for September Highs: Commerzbank Techs

- AUD rally could extend to Sept. highs says Commerzbank
- Vaccine news heralds birth of new global expansion
- Commodities, AUD tipped to benefit

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The Australian Dollar could soon reclaim its early September high against the U.S. Dollar according to technical analysts at Commerzbank, as vaccine progress stokes optimism about the global recovery and improves the technical market set-up for the AUD/USD exchange rate.

Australia's Dollar advanced against the U.S. Dollar, Pound, Euro and other major currencies except the safe-haven Japanese Yen and Swiss Franc in the wake of the announcement from Moderna that its coronavirus vaccine candidate had proven highly effective in clinical trials, leading to speculation that it could be widely available as soon as spring 2021. 

Australia's commodity-backed and growth sensitive Dollar would be a prime beneficiary of a vaccine rollout that enables economies to move on from the 'lockdown' conditions that are smothering activity across much of Europe. 

"AUD/USD looks set to retest the 0.7345 mid-September high but we are not sure if this is ready to give way yet – above here will target the early September peak at 0.7413," says Karen Jones, head of technical analysis for currencies, commodities and bonds at Commerzbank.

Above: AUD/USD shown at weekly intervals with Fibonacci retracements of 2018 downtrend and selected moving-averages.

"Initial support is offered by the 55 day moving average at 0.7187 and the 20 day moving average at 0.7182. Intraday Elliott wave counts are suggesting that dips will hold in this vicinity," Jones says.

AUD/USD pulled away from its 200-week moving-average at 0.7234 this week but Jones is betting it rises to early September highs around 0.74 over the next one-to-three weeks, after which it would have a clear path toward a major overhead Fibonacci retracement around 0.76 and its January 2018 high of 0.81.

Australia's Dollar was a frequent underperformer before the coronavirus began contaminating economies, although measures introduced to contain it have since led to a bust of the old economic expansion and birthed a new cycle in which commodities and commodity currencies all well placed to outperform.

"AUD/USD is likely to be pulled higher medium-term," says Jane Foley, a senior FX strategist at Rabobank. "Vaccine inspired recovery hope suggest a better outlook for commodities prices and this suggests decent support for AUD/USD. While we see scope for some backtracking from recent vaccine related optimism near-term, last week we revised higher our forecasts for AUD/USD and forecast 0.73 in 6 months and 0.74 in the latter part of next year."

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The prospect of a global rebound assures an Australian recovery and has helped to bolster the attractiveness of Australian Dollar assets, much to the chagrin of a Reserve Bank of Australia (RBA), which has increasingly sought to quibble over the impact that strength in exchange rates could have on its long and ever elusive inflation target.

RBA protest has done little to deter the Aussie this November and neither have multiple reports of Chinese government curbs on the importation of Australian goods, with investors resolved instead to keep selling a U.S. Dollar that tends to fare poorly in the early stages of a global recovery.

With European lockdowns and the prospect of a vaccine rollout aside, AUD/USD could also be influenced in the short-term by a resolution of disputes over the U.S. election the possibly outgoing President Donald Trump has contested. Allegations of fraud and pending legal challenges have cast uncertainty over who will occupy the White House and control the balance of power in Congress from January, questions that will be resolved either by Supreme Court battles or January run-off votes in the state of Georgia. 

"Commodity prices are the key driver of fair value for AUD. Therefore, Australia’s trade tensions with China are a downside risk to AUD," says Joseph Capurso, a strategist at Commonwealth Bank of Australia. "A ‘black swan’ influence on AUD and NZD is President Trump remaining in office. We expect the USD to lift sharply by 5% if President Trump stays in office.  One of the ways President Trump can remain in office is for several state legislatures (parliaments) to override the popular vote in their state by sending a Republican set of electors.  According to the New York Times, this avenue has been considered."

Above: AUD/USD shown at monthly intervals with selected moving-averages. 200-month average in black.