AUD/USD stalls – is the rally near an end?

The Australian dollar has been one of the surprise stars in the markets in 2020, in a year in which a global pandemic has shaken up financial markets to the core. AUD/USD has been on a hot streak, racking up gains of 15.5% since April 1, leading the assault against the sagging greenback. To be fair, much of the rally is due to broad US dollar weakness rather than investors falling in love with the Aussie, which is a risk currency. The Covid-19 virus has choked off global economic activity and the powerhouse US economy has been severely jolted, as many US states have been unable to mitigate the spread of the virus.

The streaking Australian dollar has ignored soft Australian numbers, but will that last much longer? Last week, Australia CPI for Q2 slid by 1.9%, close to the forecast of a 2.0% decline. Trimmed Mean CPI (Core CPI) fell by 0.1%, pointing to an economy gripped by deflation. Other economic indicators also pointed downwards last week. Building Approvals fell by 4.9%, marking a fourth straight decline. Private Sector Credit declined by 0.2% and hasn’t shown a gain since March. AUD/USD has dropped 1.2% since Thursday. We’ll have to wait to see if this is a temporary blip for the Aussie or has the rally come to an end.

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AUD/USD Technical

AUD/USD is trading at 0.7106, down 0.52% on the day. The pair lost ground late in the Asian session and this trend has continued in European trade

• AUD/USD is testing support at 0.7108. Below, there is support at 0.7073
• 0.7202 is the next resistance line, followed by 0.7261
• AUD/USD has pushed below the 10-day MA, which is a bearish sign for the pair

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