Australian Dollar's 200-Day MA Problem: Jefferies

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The Australian Dollar has a 200-day moving average problem: it can't seem to crack this key technical level and break into a sustained rally against the likes of the Dollar and Pound.

This is according to a new analysis from W. Brad Bechtel, Global Head of FX at Jefferies, the investment banking and capital markets firm:

"We had a nice short-term tactical move in the likes of EUR/CAD lower and AUD/USD higher but here we are back through the 200dma in AUD/USD. It just can't sustain," says Bechtel, citing recent price action proving frustrating to those looking for a stronger Aussie.

"I haven't stopped my long short-term tactical trade on AUD/USD just yet, but it's getting close," he adds.

The 200-day moving average (DMA) is a technical indicator helpful in identifying how a currency is trending, wherein lies its predictive power.

"The 200 day moving averages can be key pivot points over long horizons and currencies along with other assets tend to get 'trapped' above or below their moving averages for months at a time," explains Bechtel.

"So when you see something making a move one way or the other through the 200dma, you want to try to assess whether we are in for a new period of structural strength (weakness) above (or below) the 200dma moving average," he adds.

Above: AUD/USD with the 200 DMA annotated. Track AUD with your own custom rate alerts. Set Up Here.

The Australian Dollar-U.S. Dollar exchange rate's move to the topside through its 200 DMA has not been able to sustain and "is starting to look like a head fake rather than a shift in regime," says Bechtel.

We note, separately, that the 200 DMA is coming into play for the Pound to Australian Dollar exchange rate (GBPAUD), providing support to Sterling and frustrating the Aussie Dollar.

Above: GBP/AUD with the 200 DMA annotated. The exchange rate kissed the 200 DMA and bounced on Monday.

"So the point is that we will have to continue to watch and see how things develop. This is a market that is not convinced that they want to continue these moves in FX just yet. We may not know the answer until after the holidays, we'll have to see," says Bechtel.

The Australian Dollar has been something of a laggard over the past 24 hours after the Reserve Bank of Australia (RBA) announced interest rates would stay unchanged into year-end and perhaps through the early stages of 2024.

GBPAUD staged a 0.80% comeback to trade at 1.9250 on the day the RBA said inflation was falling as expected; messaging that limited the urgency to raise interest rates again.

"AUD is losing interest rate support. But a material rate cut cycle is not yet priced by financial markets. We consider AUD/USD can fall further in the next several months," says Joseph Capurso, an analyst at Commonwealth Bank of Australia.

"The RBA Statement landed neutral as we expected but the lack of urgency would come as a disappointment to those looking for a hawkish hold," says a note from TD Securities.