Aussie Tests 3-Year Downtrend

Since late July, I have been looking for the Australian dollar to turn lower. Instead, the Aussie has continued to climb. It has risen in ten of the past eleven weeks. These gains have brought the Australian dollar toward a three-year downtrend line drawn off the April 2013 and the June-July highs from 2014.

The downtrend line is found near $0.7850 now, which is a little above the year's high set in April (~$0.7835). The Australian dollar was lower on Tuesday and Wednesday, when it was off 1% -- the most in a month. The losses are turning technical indicators like the RSI and MACDs lower.

Initial support is seen a little below $0.7600. It is a retracement objective of the leg up since late July and the 20-day moving average. Below there is the $0.7520, which is another retracement objective and the objective of a potential double top (~$0.7755 on August 10 and ~$0.7750 on August 16, with neckline near $0.7635). A break could signal a return to those late-July lows near $0.7420.

Australia will report July's employment first thing Thursday in Sydney. It looks to be a particularly volatile report. After creating a net 7.9k jobs in June, Australia is expected to have grown another 10k jobs in July. This understates the results. Some 38.4k full-time positions were created in June. Proportionate to the US population, that's like nonfarm payrolls jumping by nearly 540k. Some payback should be expected. In any event, the labor-market improvement is not the main concern of the central bank

The Australian dollar has benefited as investors accepted that interest rates would be lower for longer in the US, Japan and Europe. Equities, commodities and emerging markets have appealed to investors. However on Tuesday the MSCI World Index of developed equity indices staged a key reversal and there has been additional weakness today. Despite NY Fed's Dudley's remarks, investors are far from convinced that the Fed will hike rates. Since the start of the week, the probability of a hike next month has risen from less than one in five to one in four. The odds of a rate hike before the end of the year have risen to a little more than 40% from just under 38%.

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