Is the Strength of the Australian Dollar Sustainable?

NEW YORK (Forex News Now) – The Australian Dollar finished 2010 with the best overall performance against the U.S. Dollar of any other major currency, gaining 14% last year. AUD/USD even hit a new post-float high of 1.0255 last Friday after U.S. Treasury yields fell following Thursday’s $29B auction.

Overall, the Australian economy benefitted from considerable growth in the Pacific Rim and China. Also, demand for commodities that led to rising prices also added support, with the price of gold making a series of all-time highs and crude oil surpassing $90/ barrel.

Adding further strength to the Aussie were Australian interest rates that remain the highest for the developed nations at 4.75%. This makes the Australian Dollar attractive for carry trades and investment since rates in many other developed areas — like Japan, the United States and the Eurozone — remain between 0-1%.

Technical AUDUSD Analysis

In recent currency market trading, AUD/USD continues to rally within a bullish medium term upward channel with a support line now at 0.9802 and a resistance line at 1.0742. Another trend line indicates resistance for the rate at the 1.0310 level that may provoke a downside correction near term.

Further resistance can be seen at 1.0255, with psychological levels at the 1.0500 and 1.1000 levels, while support for AUD/USD is indicated at the 1.0030 level and in the 0.9986/1.0028 region around the 1.0000 psychological parity level. Below that, support for AUD/USD is seen in the 0.9810/96 region and at 0.9752.

AUD/USD also trades firmly above its 200-day Moving Average, which is now at the 0.9252 level with a positive slope that indicates a continuing bullish medium term outlook. Nevertheless, the rate’s key 14-day RSI just peaked above the overbought 70 level, prompting a near term correction that brought AUD/USD down to the 1.0030 level this morning.

AUD/USD Outlook

Next Tuesday, the RBA will release its Rate Decision for January in which the central bank is expected to leave its benchmark rate unchanged at 4.75%. Any surprises by the RBA could affect the AUD/USD rate considerably.

“Is the Aussie’s strength sustainable?” the daily forex news often asks. Well, the answer still seems to be affirmative in the medium term. Nevertheless, the overbought technical condition hints of an imminent near term correction.